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All Honorable Men 

by James Stewart M.artin 

Little, Brown and Company . Boston 





Published September 1950 

The materia! from Decision in Gerrrmny by Lucius D. Clay is 
used by permission ot Doubleday & Conipafiy> Inc. 

Pffhlhhe^ Sfmultaneotfsly 
in Canada l>y McCleUand and Stewart IJtnited 


To my children, 
members of a generatioa 
entitled to ask, 
**What did you do about it?' 


and Acknowledgments 

ANY man has a right to stop after a chain of harrowing experi- 
ences and to ask why things happened as they did. Our generation 
has had its share of harrowing experiences and therefore the pe- 
culiar chain of circumstances that kept mc enmeshed for five and one 
half years was not unusual. 

It is not simply the rebirth of German nationalism and Nazism 
that occasioned the writing of this book, nor even the return to 
power of the industrialists who put the Nazis in. These events in 
themselves are significant. But more so is the fact that, along with 
them, action was aborted on other questions in Germany; questions 
of the treatment of organized labor, the improvement of agriculture, 
the reform o£ public education, the public ownership or control of 
industry, and others just as basic. As the postwar pattern unfolded, 
this chain of events in Germany became more and more of a piece 
with a larger pattern. 

In this book I have tried to tell the story of an important problem 
and some of the things that happened when we tried to deal with it. 
Though many of the events occurred in Germany, before and dur- 
ing the military occupation, they seemed in an increasing degree 
to be echoes of something more fundamental that was happening 
back in the United States. For whatever reason, the larger pattern is 
a repetition of what followed after World War I; but the pace 
has been quicker, as though greater powers were moving more 
rapidly toward a more catastrophic result 

Some people assume that everything is somehow connected with 
the cold war, and that any other course than the one we are pursu- 
ing has been rendered impossible by disagreements with Russia* 


This is surely an oversimplification. Disagreements with Russia have 
been a major issue for only twenty or thirty years, whereas the 
pattern I have traced in this book has been unfolding for a much 
longer period. 

If this work has any lasting value, acknowledgment is due to 
the men and women who staffed the Economic Warfare Section of 
the Department of Justice and the Decartelization Branch of Mili- 
tary Government, and whose reports of their researches and in- 
vestigations brought together the fabric of this story. Mention should 
also be made of the many factual materials furnished to us in Ger- 
many by the Foreign Funds Control Division of the Treasury De- 
partment and the Finance Division of Military Government. 

For her help in the preparation of this book I owe a debt of 
gratitude to my wife, Caroline Collins Martin, who not only worked 
with me during the last strenuous year in Berlin, but also cast a 
critical eye on the manuscript at every stage of its development. For 
help of various kinds I owe thanks to Johnston Avery, Charles C. 
Baldwin, Stringfellow Barr, Scott Buchanan, Norman Bursler, 
Francis W* Laurent, Russell Nixon, Alexander Sacks, Peter Weiss, 
and others too numerous to mention. Special thanks are due to 
Virginia Marino, who returned from Germany to work tirelessly on 
every phase of the book from first rough draft to finished page 
proofs. Many of the highlights are the result of the thoughtful sug- 
gestions of diese people. The faults are my own. 

For the necessary time away from other employment to do the 
writing, I am indebted to the generosity of Leon and Sonia Mohill; 
for time to prepare the manuscript for the press, to my present em- 
ployers, the Foundation for World Government; and for research 
facilities, to the Library of Congress. 

James Stewart Marhn 

Annapolis, Maryland 
June 6, /950 


Preface and Ackjiowledgments vii 

PART I Private Worlds 

1 The Fraternity House 3 

2 The Termites 17 

3 The Heavy Timbers 27 

4 The Fraternity Brothers 38 

5 Hare and Hounds 50 

6 Seek and Find 73 

7 The Heavies 82 

8 The Cantilevers 109 

9 Banks of the Rhine 118 

10 The New Hague Convention 131 

11 Electric Eels i39 

PART II The Lapse of a Policy 

12 The Call of the Wild 153 

13 The Hollow Squares 166 

14 Reducing Exercises 175 

15 Sabotage 186 

16 The Christmas-tree Economy 205 


17 Double, Double Toil 221 

18 The Decline and Fall 235 

19 The Nineteen ^5 

20 The Hand in the German Glove 264 

21 Microcosm and Macrocosm 279 

22 Angels and Men 


Private Worlds 


The Fraternity House 

THE day I started to write this we discovered termites in the base- 
ment. We were preparing to build a wing on our old house and 
found a colony of them in the heavy timbers. 

Termites are able organizers, and thoroughly attached to their 
way of lifc» The area they occupy is small in relation to the house — 
just the heavy underpinnings* They object vigorously to outside 
interference from the people who live in the other parts of the 
house. They object especially to structural changes, which they are 
bound to consider unwarranted. They have two good reasons for 
objecting to changes. In the first place exposure to light and air 
kills them. In the second place any movement of the underpinnings 
ruins the whole structure of tunnels and channels which their 
enterprise has built within the framework of the house. 

We hated to disturb them. They looked busy and enterprising. 
They seemed to want nothing more than a comfortable existence 
in accordance with their way of life. 

We cleared the termites out to save the house, but I think I know 
how they looked at the whole matter. At the end of the Second 
World War I spent two and a half years in Germany dealing with 
some people who must think pretty much the same way. 

My story goes back to 1938, when I was a lawyer recently turned 
college professor. I was serving as general counsel and treasurer, as 
well as teaching, at St. John's College in Annapolis, the "Great 
Books" college. Between reading the famous list of one hundred 
great books and untangling the college finances I found only occa- 
sional opportunities for the pastime of studying international affairs 
and the movements of international business. Certainly I had no 


intention at the time of becoming actively involved with inter- 
national monopolies or with the Germans who backed Wor]d 
War IL 

My introduction to the specific problem of the German cartels was 
casual, almost accidental. On my infrequent days oS I usually took 
a busman's holiday and went to Washington to listen to arguments 
in the Supreme Court or to visit friends, most of whom were 
government lawyers. Washington was a happy place in 1938. Ex- 
cept for a lawyer's usual concern to keep the details of pending 
cases confidential, the exchange of fact and opinion between citizen 
and public servant was normal The talk with my friends was 
about law. I swapped stories about our troubles in carrying a half- 
million dollars in debts without throwing the college into bank- 
ruptcy, for stories about their troubles in enforcing the Securities 
Exchange Act and the antitrust laws. 

Throughout this period there v^^ere occasional rumWings in the 
press from Thurman Arnold, who was complaining about the 
international affairs of some American corporations. These com- 
panies were often mentioned in connection with the German dye- 
stuffs and chemical trust formed about twelve years earlier, known 
as the I.G* Farbenindustrie. Other foreign companies too were 
mentioned. Most of them would have been famiHar to constant 
readers of the financial pages, but they were not as well known 
among the general public as their American counterparts would be. 

Later on, during the war, the subject of private international 
arrangements among business firms, especially when they took 
the form of cartel agreements, got a considerable amount of public 
attention. But in those earlier days it was different. Many people 
could see no important principle at stake when the government 
announced some new antitrust suit against a group of American 
and foreign firms. On the surface these international cases appeared 
to be no different from any other government lawsuit such as one 
involving a monopoly of Wisconsin cheese or California hardwood. 

At first the only remarkable feature of the operations encountered 
in the international cases was their size and scope. Even judging 
from the brief summaries in dispatches from Washington something 
in the giant stature of the companies involved, some hint of the 



vast sweep of their arrangements, reminded one of an ancient Greek 
epic. I began to piece together a story from a growing collection of 
newspaper clippings. The cases Arnold and his men were talking 
about had to do with a series of arrangements dating back for a 
decade or so, to 1926 and 1929, when international agreements 
among some of the biggest American, British and German firms 
had quietly divided up the world. 

What I heard and read of these antitrust cases and the new sort 
of international brotherhood they implied — a business brotherhood 
more solidly built than the "international finance" of past genera- 
tions — began to bring other events closer to home. In mid-March 
1939, when a group of some of the largest British and German 
industrialists gadiered at Diisseldorf to map plans for the economic 
collaboration between their two countries, the press barely reported 
the meetings. I might have skipped the news items entirely had I 
not been already familiar with the subject matter. It was impossible 
to overlook the fact that the industrialists who were meeting at 
Dusseldorf were from the same groups of companies which ten 
years earlier had arranged the three-way split of the world s markets. 

The growing conviction that these private international arrange- 
ments were important was brought to a head by my encounter with 
the German ex-chancelior, Heinrich Briining, early in 1940, during 
the period of the '*phony war/* St. John*s College invited Dr. 
Bruning to give a lecture about the last days of the German Re- 
public and how he had been deposed to make way for Hitler. His 
lecture was largely a description, by hindsight, of his own blindness 
during the time he was chancellor. 

Dr. Briining's story was one of being always a step behind the 
events. By his own account he never knew what hit him until after 
he had been deposed and was hiding out in the mountains of 
Austria. While gangs of Nazis combed the countryside looking 
for him, he spent his days reading and for the first time understand- 
ing Thucydides's classic history of the Peloponnesian War: a work 
that generations of British diplomats have used for a teething ring, 
and that Dr. Briining had carried with him from his early youth. 
As he reread Thucydides*s story of ancient power struggles, he 
suddenly began to realize what forces had been combined against 



him in Germany : how under the pressure of administration he had 

assented to decrees that weakened the *'equal protection of the 
laws," and how large-scale economic forces had made inevitable 
some developments he had tried to stem by "voluntary** agreements 
among business interests. 

Even in the retelling, however, it seemed to me that Dr. Briining 
again showed some of his former blindness. The main point in 
Thucydidcs's history was the discovery of the large part that eco- 
nomic forces play in bringing nations into conflict. Yet, even when 
pressed by questions, Dr. Briining showed no particular concern 
over the role of the large German industrial corporations. He related 
the entire story of Franz von Papen's intrigues, his posting of 
gunmen to prevent Bruning from seeing the aging von Hinden- 
burg, and the other events of the last days, without once alluding 
to von Papen*s conferences with the bankers and the Rhineland 
industriaiists who agreed to back Hitler and who put up the 
funds. It was, throughout, a story of politics without economics: 
a story of a man who had felt that no harm could conne from 
temporary dictatorship so long as the laws and the courts pro- 
tected civil rights, who showed no feeUng for the ways in which 
great economic power and unlimited funds could get around an 
inconvenient legalism. 

In Dr. Briining's view it was the refusal of groups like the Ger- 
man winegrowers to improve their export markets that had cur- 
tailed Germany*s export trade and intensified the depression. His 
talk would be comparable to an Americanos blaming an economic 
depression in the United States on the activities of the Farm 
Bureau Federation, with scarcely a word about our industrial firms, 
or the level of industrial employment. This was quite puzzling, in 
view of all that had happened in the preceding seven years. I knew 
that before he was ousted, Dr. Briinings political enemies had 
called him the "LG. Chancellor'* — a suggestion that the gentlemen 
of I.G. Farbenindustrie had got pretty much what they wanted 
under his administration. Yet the man himself was far from pre- 
senting the appearance of a person likely to be influenced by or 
to have much influence with **big business." He looked a great deal 
like Woodrow Wilson. He had risen to the chancellorship from 


the post of Minister of Education, not from the board of the 

Deutsche Bank. Even his manner was Wilsonian: a combination of 
professorial bewilderment and amazed indignation at the way the 
world goes- 

This man who had been at the top in Germany when Hitler's 
Nazi program was put across had seen too little at the time to plan 
any counterstrokes. Later, sitting in a mountain hideout and read- 
ing an intelligent account of an ancient Greek war, he had felt 
the stirrings of an awareness. Things unknown to him at the time, 
things he had not even heard about, had been moving under his 
feet. In the end they had dethroned him and plunged his country 
and the world into a major catastrophe. Yet still later, in looking 
back on the events, he seemed to be missing the point. 

I thought at the time that I might be just seeing ghosts. It was 
too easy to draw parallels between what had happened economically 
in Germany and what could be happening in the United States. 
Thurman Arnold seemed to be saying, sometimes patiently, but 
more often with an emphasis reminiscent of Donald Duck, that 
great forces were at work through the channels of what we in the 
United States had regarded as ordinary business. Arnold was 
charging that some of the transactions of ordinary business had 
crippled productive power in the United States, regardless of the 
motives that prompted the individual deals. 

If Arnold was right, there was something of serious general con- 
cern ia the private arrangements made in the twenties and thirties 
among American, British, and German industrialists. Yet Arnold's 
boss, Attorney General Francis Biddle, did not appear to be im- 
pressed by the noise Arnold was making. By 1941 it seemed even 
that Biddle had become resentful of Arnold's constant baying. A 
newspaper column by Thomas L. Stokes hinted that Arnold and 
Biddle had clashed over the investigation of international agree- 
ments between Sterling Products, Inc., a drug firm, and Germany's 
I.G, Farben. Stokes said that Thomas G. Corcoran, late of the 
Roosevelt brain trust, acting as attorney for the Sterling company 
headed by Corcoran*s brother, had prevailed upon the Attorney 
General to quash an antitrust prosecution and to accept a * 'consent 
decree'* instead. This legal move took government investigators 


out of the files of the Sterling firm and closed the curtain on the 

details of what had been going on between Sterling and Farben, 
in return for the Sterling company's promise to clean house and 
behave in the future- 

The newspaper stories of the Sterling case were fragmentary. 
They stated only that a business arrangement between the two com- 
panies had allowed the German firm to keep a tight grip on its 
overseas markets in Latin America during the war in spite of a 
tight British naval blockade. By arrangement between Germany's 
Farben trust and the Sterling firm, drugs manufactured in the 
United States had been shipped in bulk to Farben agencies in Latin 
America. These German agencies labeled the drugs "made in 
Germany" and kept right on supplying their customers while they 
laughed at the British blockade. 

Early in 1942, Washington announced the creation of a new 
agency to deal with the economic side of the war. The Board of 
Economic Warfare, consisting ot several members of the cabinet 
under the chairmanship of the Vice President, was to have jurisdic- 
tion over this agency, which would have a variety of duties con- 
nected with ^'economic warfare." The idea of economic warfare 
seemed simple enough. Germany and Japan were enemy nations. 
To produce war materials and to keep their people alive they had 
to get some kinds of goods from territory outside the areas their 
armies controlled. To keep them from getting these items, the 
nations on our side could resort in the first instance to naval block- 
ade. Beyond blockades there were the possibilities of buying up 
scarce commodities to keep them out of enemy hands, or of 
persuading nonbejligercnts not to sell to the enemy. These ac- 
tivities would, of course, connect up with the Air Force's "strategic 
bombing" of important production facilities in enemy territory — 
the attempt to undermine enemy war production by knocking out 
key factories. 

One night in February 1942 I had a phone call from Edward H. 
Levi, one of the members of Thurman Arnold's staff. He asked 
me to leave my post at St. John's College and take a position as 
special assistant to the Attorney General. I was to help organize a 
unit in the Department of Justice to work with the newly created 


Board of Economic Warfare. Soon after the Board was set up, Milo 

Perkins, its executive director, had written to the Attorney General 
asking for reports on the international business ties between Ameri- 
can firms and firms in enemy territory, wherever these ties could 
be expected to work to the advantage of the enemy. Also Mr. 
Perkins had asked for any information that would give details of 
industrial plants and industrial production in Germany and Japan. 
Such information would be useful to the Air Force as well as the 
Board of Economic Warfare. 

A short time later, in conversations with Johnston Avery, ad- 
ministrative assistant to Thurman Arnold, I found out more of 
the details and agreed to join the team. I worked with members of 
the Antitrust Division in setting up in the Department of Justice 
the Economic Warfare Section, of which I finally became chief. We 
set up field offices in principal cities, the largest part of the staff 
being maintained at New York, where Robert Wohlforth headed 
some twenty or thirty lawyers and investigators. Our object was to 
test the possibilities of viewing the enemy through the chinks and 
loopholes of international business arrangements. 

Once we knew which American companies had agreements with 
which Japanese or German companies we knew where to find 
engineers and technicians who had visited, and in some cases even 
had drawn the blueprints for, plants making synthetic rubber, 
synthetic gasohnc, tetraethyl lead, precision ball bearings, and the 

This kind of reporting became known as "bombing" work and 
we found ourselves quickly dubbed the "bottleneck boys." Air In- 
telligence wanted to find out as much as possible about the industry 
in all areas where the Air Forces might be operating. They wanted 
to know the relative importance of different plants, partly to help 
plan the targets for bombing missions, and partly to help in figur- 
ing out what they had hit after the raid was over. We had neither 
the staff nor the facilities to make sweeping economic studies of 
German industries. But we could find out, from men who ought to 
know, which plants producing what materials were likely to be 
the "bottlenecks" in German production. 

We had no way of knowing where all the coal mines or steel 


plants in Germany were; but we did find out that, by agreement 
among the biggest producers of precision antifriction bearings, 
practically all such, bearings of any importance in Germany were 
made in only three factories grouped around the railway yards in 
Schweinfurt. We could not locate all the gasoline refineries; but 
we did find out that there were only three plants equipped to make 
the tetraethyl lead which is necessary for high-octane aviation 
gasoline, and we found a man who could draw pictures of ail three* 
We did not know where to locate all of the mills producing brass 
for cartridge cases; but one of our men did find out that there 
were only two ways of making the special high-grade zinc that 
goes into this type of brass, both ways being the subject of patents, 
and he found blueprints and diagrams of all plants in Germany 
capable o£ making this zinc by consulting the files of two American 
companies* While other agencies hired economists and technicians 
to lay out large studies of the German industrial economy, our 
men interviewed men from Du Pont, Standard Oil, International 
Telephone and Telegraph, Anaconda Copper, General Motors, 
General Electric, and investment bankers and other businessmen 
who had been to Germany on what turned out to be "bottleneck" 

As we worked on the search for bottlenecks in German produc- 
tion, we began to find a close relation between international business 
agreements for the restriction of production and the kinds of 
products which were especially critical in wartime. The trouble was 
that these international arrangements which pointed up the im- 
portance of certain commodities in the German economy had also 
resulted in restriction of production in the United States. 

Arnold's men found that one company, Rohm & Haas of Phila- 
delphia, was not able itself to produce enough transparent plastic 
sheets for bomber noses. But because Rohm & Haas of Philadelphia 
had Du Pont under a special agreement, as part of a more complex 
and wider four-way arrangement involving Du Pont and two 
German firms, LG« Farbenindustric and Rohm & Haas of Darm- 
stadt, Du Pont was permitted to turn out only a limited quantity of 
the plastic sheets. While government expediters were tearing their 
hair over slow deliveries, Du Pont was writing to Rohm & Haas of 


Philadelphia that they would have to tell the government about the 
agreement unless Rohm & Haas would lift the restriction. 

We discovered even more spectacular complications, such as those 
in the three-way arrangement among the aircraft-equipment firms, 
Bendix of the United States, Siemens of Germany, and Zenith in 
England. Under one of these arrangements the American firm in 
1941 had stood by an agreement with the Siemens firm of Germany 
and forbade British Zenith to grant patent licenses so that the 
British Air Ministry could expand production of aircraft carbure- 
tors. Almost a year after Dunkerque, Zenith wrote to Bendix 

The Ministry suggested they would prefer to manufacture the 
carburetors themselves and asked us to waive all our rights in this 

We have told them plainly that we are not prepared under any 
circumstances to agree to this or to alter one item of our contract 
with you. . . . 

You know that we have got to win the war if we are going to 
survive and it is because we know we shall win and survive that 
we are anxious that post-war business should not be complicated 

by departing from the conditions of the contract in the meantime 
and under the excuse of war conditions. . . . 

As the war went on Senate committees probing production 
botdenecks in the United States helped to compile and make 
public the records of a staggering number of similar arrangements, 
differing in detail but all having the same effect. They were widely 
denounced but principally on the ground that they represented 
"business as usual" during wartime. Editorials solemnly pronounced 
that all such arrangements should be "out for the duration." 

These business arrangements operated at focal points where it 
was possible to turn on and off the main valves in economic pipe- 
lines. It was not long before we found that the arrangement of 
valves and pipelines was a two-way affair. Our elation at the dis- 
covery that practically all of Germany*s fine optical glass came from 
one factory, the Schott Works at Jena, was counteracted by the dis- 
covery that under the same working arrangement only one such 



factory of any importance existed in the United States, The pin 
point for bombing in Germany could be the blueprint for sabotage 
in the United States, 

As i£ to add point to such thoughts about sabotage, during the 
summer of 1942 the Justice building in Washington played host 
to the trial of eight Nazi saboteurs who had been landed by sub- 
marine to blow up some o£ the key factories in the United States. 
Morning and evening the black vans of the United States Marshal 
trundled the prisoners under our windows and all day long the 
drawn faJinds on a row of windows two stories up and across the 
courtyard were a reminder that sabotage in the literal sense of the 
term was not just a theoretical possibility. 

But sabotage in its literal sense was not the point. As our piece- 
meal reports stacked up a picture began to emerge of an enemy that 
did not need the services of trained, professional spies and saboteurs. 
By agreement between German and American producers of mag- 
nesium — needed for aircraft — production in the United States 
before the war was limited to no more than 5000 tons per year. In 
contrast, Germany in 1939 alone used 13,500 tons and during the 
next five years consumed magnesium at the rate of 33,000 tons per 
year* Here was a case where American "business-is-busincss" men 
had, knowingly or unknowingly, helped a German firm to close 
some valves over here, with far more effect than the eight saboteurs 
could ever have achieved even if they bad been allowed to do their 
utmost* Plants which have never been built are more dead than 
plants which have been bombed. A bombed plant may still live in 
its blueprints and in the trained labor force that had been operating 
it. As the evidence piled up to show German success in negotiating 
restrictive arrangements, the contrast between the limited possi- 
bilities of cloak-and-dagger sabotage and the greater possibilities of 
safely negotiated business arrangements became more and more 
heavily underlined with each passing of the Black Marias under 
our windows. 

Unfortunately, Francis Biddle and Thurman Arnold were still 
like stiff-legged fighting roosters with each other. Some of Biddle*s 

public remarks, including humorous references to the '^bombing" 
work of Arnold and his boys, seemed to confirm our impression 


that the Attorney General considered what we were doing to be the 
product of a somewhat amusing mental aberration. 

Finally, combined pressure from the War and Navy Departments 
and the War Production Board prevailed in suspending the en- 
forcement of the antitrust laws for the duration of the war in all 
cases aiTecting industries considered important to the war eifort, AH 
that was necessary to stop an investigation or the prosecution of a 
case was a certification from Robert P. Patterson, Undersecretary of 
War, James V, Forrestal, Undersecretary of the Navy, and John 
Lord O'Brian, General Counsel of the War Production Board, 
that any attempt to press the case would interfere with the war 
effort. This signaled the end of Thurman Arnold's great trust- 
busting drive. A short time later Arnold allowed himself to be 
kicked upstairs. He accepted an appointment as judge of the Court 
of Appeals for the District of Columbia, 

With Arnold's departure the Attorney General showed signs of 
more serious interest in the evidence of how the German program 
of economic warfare had been carried out. Biddle called for more 
and more thumbnail sketches of what we were discovering. By the 
spring of 1944 the time came to add up the score. In three years, 
with a staff of less than sixty people, we had prepared thirty-six 
hundred of these snapshots of German economic power in action; 
but the Attorney General wanted to know the conclusions of all 
these findings. We began to summarize our picture of an enemy 
that could survive a military defeat because it did not need or use 
military weapons. 

This enemy did survive military defeat after World War I. We 
had in front of us the story of what lay behind the Ruhr occupation 
of 1923, the mna\v3iy German inflation, the Dawes and Young plans, 
the Dillon, Read and the Schroder bond issues, the growth of the 
Ruhr as the "industrial heart of Europe," Germany's strange ob- 
session with heavy industry at the expense of consumer goods — 
"guns, not butter." 

As we summarized these findings, the Attorney General took 
more and more interest, became fascinated, began to speak in favor 
of doing something to prevent it all from happening again. He 
talked to President Roosevelt. In the fall of 1944 the President 


wanted some of these findings publicized, to pave the way for seri- 
ous postwar policies to deal with the problem. He wrote his famous 
letter of September 6, 1944, to Secretary of State Hull: . • The 
history of the use of the LG. Farben trust by the Nazis reads like 
a detective story. Defeat of the Nazi armies will have to be fol- 
lowed by the eradication of these weapons of economic warfare.*' 

We had started out to get a picture of our military enemy and 
had found a much bigger enemy, of a quite different sort from 
the popular picture of hobnailed Nazis with guns and tanks. 

Late in the summer of 1944 Francis Biddle, the man who three 
years before had found nothing very important in the Sterling 
Products case, and who two years before had been amused by 
Thurman Arnold's **bombardment" of Germany, told a Senate com- 
mittee what he thought must be done during the occupation of 

... As we approach the occupation of Germany, we will have 
to decide what is to be done with the great German monopolistic 
firms. These are the firms that made the contracts in wliich [we] 
are interested. The period between the wars was only an armistice 
during which the firms of Germany conductt^d war against us. 
The British representative on the Inter-Allied Commission Super- 
vising German Disarmament stated in a lecture in 1923: 

"We, in this country, flatter ourselves that the war ended on 
January 10, 1920; a future generation may yet describe the period 
in which we are living as an armistice during which the war was 
continued by other methods than rifle and howitzer, only to be 
resumed in all its carnal horror after the lapse of a few ambiguous 

These firms in reality operated as departments of the German 
Government. They evaded and violated the peace treaties in order 
to build up Germany's military strength. It was the theory of the 

German Government that operating under the guise of ordinary 
commercial arrangements, these firms could be used to weaken 
Europe and America so that when the military war was resumed^ 
we would lose. Through the techniques of industrial penetration, 
they hoped to be able to cripple American production, to gain from 
us technical know-how, to conduct espionage upon us, and to 
establish centers of propaganda throughout the world. 


The shadow of the Sterling case moved across Mr. Biddle's 
account. Sterling had taken over the American Bayer Company 
after World War I and it was what Sterling and I.G. Farben had 
agreed to do with the business of American Bayer that had been 
the nub of the Sterling Products case in 1941. Mr. Biddle in 1944 
told the Senate committee : 

LG. Farbenindustrie is the principal combine which has been 
used by the German Government to attempt to restrict American 

production. It is the successor to the German dye trust which at- 
tempted prior to the last war to keep an independent American 
industry from developing. The president of the American Bayer 
Co., which was owned by the German dye trust, was told by his 
German superiors that his accomplishments in holding down 
American production before the last war could be compared to the 
work of an army leader who had succeeded "in destroying 3 rail- 
road trains of 40 cars containing 4?^ million pounds of explosives." 

After amplifying these conclusions with further facts he pounded 
home his point: 

I hope, as the years go by, we will not forget . . . not because I 
wish to have individual American companies condemned, but be- 
cause these things should not be permitted to happen again. It is 
the system under which Germany was able to make these cartel 
agreements that must be broken up. 

At the present time it is probably inaccurate to speak of separate 
combines or cartels in the German economy. They are all linked 
together — the munition makers, the potash industry, the machine 
trust, the oil industry, the electrical manufacturers, the steel trust, 
and the chemical companies. They exist as part of the Nazi govern- 
ment. We may expect, however, that when the government falls 
they will appear again as separate combines. The companies which 
were used as instruments to violate the peace treaties, to dominate 
Industry in Europe, to support the Nazi war machine, and to re- 
strict production here will then appear in the gui&c of ordinary 
commercial firms. 

The Attorney General put his finger on the gist of what we 

had learned when he underscored the fact that "The pattern of the 
activity of these firms was established before the Nazis came to 


power and during the early days of the German Republic. The 
German Government and the German people as a whole have never 
accepted the doctrines of economic liberalism which run through 
American history. The monopolistic firms of Germany have sur- 
vived in that country through two wars and constitute a definite 
menace to the future peace of the world. As long as they survive in 
their present form it will be exceedingly difficult to develop in- 
dependent industry in Europe outside of Germany." 

He called for action. "1 propose that we break the power of the 
German monopolistic firms. The purpose of such a program would 
not be to destroy German economic life in its entirety, but to put its 
industries into a form where they will no longer constitute 2l menace 
to the civilized world. I do not underestimate the difficulties in- 
volved in such a program. . . . Such a program cannot be worked 
out in any definite form on paper and at this distance from the field 
of operations. It will have to wait the period of supervision over 
these complies that should come during the occupation period. But 
this is a procedure which we did not follow after the last war. It 
will not be followed in this war unless we make up our minds to 
do it now and prepare for it . . . [We must] have some picture of 
what this complicated industrial interconnection is when, after 
Germany has been conquered, we sit down and say: What will we 
do to break up this industrial domination?*'* 


The Termites 

THE Battle of the Bulge was just over. The German juggernaut 
was grinding to a stop for the third time since 1870. There was still 
the possibility that the Nazis would pull out all the horrors of poison 
gas and bacteriological warfare for a Wagnerian finale. Looking 
ahead to the end of the shooting war, nearly everyone wanted to 
know what could be done to keep Germans from starting the same 
kind of thing all over again. 

The United States was in a mood to propose new ideas. This was 
true especially on the economic side of international relations, where 
so many troubles begin. Wc were tired of trade barriers, restrictions, 
nations playing their cards close to the chest. We were becoming a 
little ashamed of having farm "surpluses" and industrial "over- 
production" in one part of the world while people starved and did 
without things in other parts. The tremendous wartime produc- 
tion in our own country^ outstripping all estimates, had itself been 
an eye opener. Why not have full production and full employment 
in peacetime, too? We were beginning to have some feeling for the 
idea that economic restrictions, depression, and war are not un- 

Francis Biddle's demand for curbs on the big German financial 
and industrial combines was not ignored. The Financial Branch of 
SHAEF, General Eisenhower*s headquarters in Europe, asked for 
help in planxiing the necessary steps. They were preparing to in- 
vestigate the concentration of economic power in Germany. They 
wanted to discover how the German leaders were smuggling great 
fortunes abroad to provide a future base of operations after the 
coming military defeat. 


With the approval of the Attorney General and the Secretary o£ 
the Treasury, a fe\v of us were formed into a small team sent over 
jointly from the Economic Warfare Section of the Department of 
Justice and the Foreign Funds Control Division of the Treasury 
Department to help the Financial Branch. I was in charge of the 
Department of Justice contingent- 
It was going to be our job to uncover records, and to find and 
talk to the German masterminds who had laid their plans for turn- 
ing military defeat into economic victory. We had to find out what 
they had done and how they had done it. This was no job of 
criminal investigation. That would be for the war crimes staff. We 
would not be concerned directly with the intentions or the good or 
bad faith of the handful of Germans who had shaped the building 
of Hider's New Order. Neither would we be concerned with the 
good faith or patriotism of their helpers in other countries. 

The men who turned the policy of France before 1940 toward 
economic collaboration with the Third Reich have never admitted 
that they intended digging a grave for France. The men of the 
Federation of British Industries, who in March 1939, at Diisseldorf, 
worked out a plan of economic collaboration with the Reichsgruppe 
Industrie, have denied any intention of helping to set the stage for 
war. Even the German bankers and industrialists who called in 
Hitler to bolster their tottering financial empires later denied any 
intention to produce what followed. Whatever their story might 
be, we had to know how such men came to have power and what 
forces determined the use they made of it. 

Sitting on the management boards of six large banks and seventy 
huge industrial combines and holding companies, fewer than one 
hundred men controlled over two thirds of Germany's industrial 
system. Their International ties gave them a central location within 
the framework of European heavy industry and finance. Long be- 
fore the war these companies and their relations to one another had 
set the economic pattern for most of Europe. During the Gcrm:^n 
occupation of the neighboring countries they had had new op- 
portunities to strengthen their hold. 

Even before we left the United States it took no powers of divina- 
tion to realize that German finance and industry would have made 


the most of these opportunities to set up new vested interests in 
hands that would appear to be French, or Dutch, or Belgian, or 
Italian. We could expect to be greeted by these "allied" defenders 
of the Nazi economic New Order, who would resist our countcr- 
nieasures by wailing that they had already "suffered" under the 

It would have been hard to maintain any illusion about the job 
ahead. Finding out what to do wouM be bad enough. Getting 
different agencies of our own government to recognize an un- 
familiar danger and agree on a course of action might be something 
else. We had already been through a preview of such difficulties in 
dealing with a case that came up early in the war. I was reminded 
of it just as we were leaving for Europe. 

On a bleak night in February 1945 I found myself standing with 
my small party of mvestigators in the mist at the Washington 
airport, waiting to take off. As I stood in the gloom, observing all 
the security measures that shrouded our routine departure — the 
blackout of the field and plane, the silence, the sudden orders — I 
remembered our discovery earlier in the war of how easily the 
**secrecy" of ship sailings had been penetrated by the Germans. 

In 1940, 1941 and 1942, ships leaving American seaports had had 
the same security measures to protect their departure. Yet many of 
their broken hulls and water-soaked cargoes had washed up onto 
the beaches of New Jersey, Virginia and the Carolinas, where Ger- 
man submarines had spotted them within sight of shore. In case 
after case, every man on board had been marked before the captain 
opened his orders. Though they may not have known it, the cargoes 
they carried were reinsured with Munich. The routine system 
of placing insurance had put precise information on their sailing 
date and destination in the hands of the Germans before the ship 
left port. 

In the summer of 1941, before there was any Economic Warfare 

Section, several trust busters discovered that while the American 
public was looking more and more askance at German business 
connections, insurance companies doing an international business 
seemed to have no such doubts about their foreign commitments. 
Insurers of large risks, such as ships, cargoes, and industrial plants. 



customarily spread the risk among other companies willing to take 
fractional shares. The big insurance and reinsurance companies in 
the United States which handle the largest risks have such treaties 
on an international basis, through arrangements with the Lloyd's 
group in England, or with the Zurich group in Switzerland. 

It had long been the custom of the American companies to place 
the reinsurance on ships and cargoes with the Zurich group by 
cabling information to them so that they could accept responsibility 
for a share of the American insurer's risk. The information cabled 
would include the name of the ship, the sailing date, the cargo 
carried, the destination, and the value of the insured property. One 
detail that should have raised someone^s eyebrow, but did not 
until the government stepped in, was the fact that the Zurich group 
in turn had a reinsurance treaty with the Munich reinsurance pool 
in Germany. The result was that during 1940 and early 1941, by the 
time a ship had cleared New York or Baltimore harbor headed 
for a European port, the German intelligence service already had 
the sailing data in hand. 

When men from the Department of Justice called a conference 
of insurance representatives, the companies agreed to stop sending 
such information by cable. But even then no one realized what an 
efficient pipeline the Germans had set up. It appeared later that 
everyone concerned, both government officials and insurance men, 
assumed that sending the information by mail to Switzerland would 
be perfectly all right. Nothing was said about stopping completely 
the transmission of reinsurance information. 

In the spring of 1942, after we had started to set up the Economic 
Warfare Section, we found that reinsurance information sheets, or 
^^bordereattxP were still going to Switzerland by mail. We also dis- 
covered that the reinsurance business^ far from being confined to 
ships and cargoes, also covered industrial plants, and more es- 
pecially those very large new plants being built for war production, 
the ones with security guards at the gates to see that no unauthor- 
ized eyes got inside. 

In the case of industrial plants, we found that the reinsurance 
bordereaux did not account for the full extent of the leakage. The 
usual reinsurance treaty on such risks provides that the reinsurance 



group has the right to demand copies of a full report by the in- 
surance inspector. This includes blueprints of the installation, 
description of the fire hazards and risks, and inventory of the con- 
tents of the buildings, room by room. We found that, before 1938, 
the Zurich group had asked for the full insurance inspector's report 
in only 5 or 6 per cent of the cases. After 1938, the full report was 
requested with increasing frequency, until the percentage was 
closer to 90. 

It had seemed obvious to us that the government ought to stop 
this transmission of shipping and industrial information through 
Switzerland to the Reich. Unlike the United States, the GtrmsLU 
government as early as 1936 had closed off such information about 
Germany* As soon as the Germans occupied France, Belgium, and 
Holland in 1940 they put a stop to all such transmissions from those 
countries. We proposed to have the Attorney General send a letter 
to each company warning that transmission of marine and in- 
dustrial plant information of this type came within the scope of the 
Espionage Act. Issuance of such a letter in the name of the Attorney 
General, however, required approval by the Solicitor General, 
Charles Fahy. Mr. Fahy would not take this responsibility without 
consulting the other interested departments of the government. 

At first, no one could believe that Americans were handing the 
German intelligence service information on a silver platter. At one 
of Mr. Fahy's interdepartmental meetings, Joseph Borkin, then of 
the Antitrust Division, slapped down on the table a stack of in- 
surance inspectors' reports on various prominent buildings. He had 
purchased these from sources open to anyone in the insurance 
business without any special "security" clearance. For fifty-five cents 
he had the plans of the White House, showing the location of fire 
extinguishers and other protective apparatus. For seventy-five cents 
he had the plans of a large new magnesium plant. One of the blue- 
prints had an arrow pointing at a valve, with the legend: '*Under no 
circumstances must this valve be closed while the plant is in opera- 
tion, as an explosion would result " 

To complete our case, we had obtained from the Office of Censor- 
ship copies of insurance bordereaux photographed from the current 
week's mail destined for Switzerland. 



We got other evidence to show that German insurance companies 
were operating at a loss in Latin America, with the help of a Ger- 
man government siibsidy, to capture a larger share of the inter- 
national reinsurance business. At the same time, to show how in- 
formative inspection reports could be to an outsider, another of our 
men got from the files of American reinsurance firms similar data 
on important European plants, such as the N,V. Philips lamp and 
radio-tube factories at Eindhoven, Holland. Months later, the 
British Ministry of Economic Warfare thanked us profusely for 
copies of this report, even though it was dated 1939. They told us 
it had been used in planning the RAF raid on Eindhoven in 
December 1942, and in assessing the bomb damage after the 

Still there were objections. Maritime Commission representatives 

argued that existing regulations required them to place insurance on 
all cargoes. If we put any brakes on the insurance companies, they 
might decline to accept the risks, and ship sailings would be de- 
layed. Besides, enemy agents could get information on ship sail- 
ings and cargoes by going down to the docks and watching the 
ships load and depart. 

The FBI resented the implication that enemy agents had the rim 
of the waterfront. Nearly everyone in the end agreed there was no 
sense in wrapping up marine and industrial information and 
handing it to the Germans. But the Maritime Commission was 
still worried about the possibility of not getting insurance placed 
before ships were ready to sail. Other agencies were bothered about 
industrial plant insurance. For months they urged us to look for a 
solution that would permit the insurance business to be carried on 
as usuaL Why not set up an interdepartmental committee of 
qualified economists and experts to sJt in consultation with mem- 
bers of the insurance industry? They could pass upon specific items 
of information, deciding in each case whether the release of the 
information would substantially harm the war effort or give help to 
the enemy. 

We stuck to our guns and insisted that the simplest thing to do 
was to tell the Insurance companies that this particular practice had 
to stop. Let the people in the business, who were already familiar 


with conditions in their industry, figure out how they could adjust 
themselves to the new circumstances. We felt that government, 
wherever possible, should operate through laws, not by setting up 
more and more administrative tribunals to command or forbid par- 
ticular acts. We pointed out that the Lloyd's group had solved a 
similar problem by sending over from England a resident repre- 
sentative with power of attorney to make commitments on behalf 
of the British companies without sending information out of the 
United States. 

Our stand for a government of laws, not men, got no support 
from the Solicitor General. Mr. Fahy overruled us again, and dis- 
cussions continued on how to set up an interdepartmental screening 
committee. After several months of this, even men from the in- 
surance business began to ask the Attorney General to send his 
letter so that they could get the bureaucrats out of their hair. In the 
end the letter was sent out, nearly a year and a half after the leakage 
had first been brought to the attention of an agency of the govern- 
ment, and over four months after we in the Economic Warfare 
Section had taken up the case and pointed out what uses the 
Germans could be making of the information. 

Actually the Germans made plenty of use of it. Nearly three 
years later, in the summer of 1945, in the files of the Munich Rein- 
surance Company and the German intelligence service, we were to 
find bundles of photographs, blueprints, and detailed descriptions 
of whole industrial developments in the United States, many of 
them obtained through insurance channels. Together they made 
up the vital statistics of our war economy. 

Nothing was ever done to restrict the circulation of insurance 
inspectors* reports within the industry, inside the United States* 
A few weeks after Joe Borkin made his dramatic purchases, an 
FBI agent appeared at Borkin office in the Justice building and 
demanded to know why Joe, who is not in the insurance business, 
had been buying up this type of information. The FBI, with its 
attention focused on security of information about war plants, had 
seen nothing unusual until someone outside the insurance field 
showed an interest in information that was freely accessible to any- 
one in the business. Like the characters in the Chesterton story 


who failed to suspect the mailman, even the G-men had a blind 
spot for "security leaks" that occur in what is regarded as the 
normal course of business. 

This reminder o£ how hard it can be to warn others about a new 
kind of danger was a disturbing thought as we prepared that 
February night in 1945 to take oif for Europe. How were we going 
to fare when we ran up against real demonstrations of German 
economic power and ingenuity, where the opposition to change 
would be a lot more formidable because it would be carefully 
engineered? The answer was not long in coming. 

We settled down out of the sky over England into a fog-covered 
beehive called Bushy Park, headquarters for the future military 
government of Germany, then known as the U.S. Group Control 
Council. Brigadier General CorneHus W. Wickersham was in com- 
mand and it was on our way to report to him that we got our first 
forewarning of opposition to come. Together with Norman Bursler 
and Alexander Sacks, I was walking through the hall of a tem- 
porary wooden office building when Alex pointed to the name of 
Colonel Graeme K. Howard over the office door of the Director 
of the Economics Division. Howard was the author of a book, 
written in 1940 before the United States entered the war, called 
America ctnd a New World Order, an apologia for the Nazi eco- 
nomic system that might just as well have been titled You Can 
Do Business with Hitler. Now it looked as though we were to be 
working with him and with others like him in an effort to recon- 
stitute Germany on a new pattern. 

Colonel Howard was only the first of many who turned up, 
riding into Germany with the future military government, help- 
ing to deflect the policy back into old grooves. Colonel Howard, it 
is trucj was straightway relieved of his duties before we left Bushy 
Park for the Continent; in fact, just after General Wickersham 
received a copy of his book from the Intelligence Division. But 
trick pennies are the same on both sides. The position of economic 
director was filled by the assignment from Washington of Briga- 
dier General William H. Draper, Jr., on military leave from his 
position as Secretary-Treasurer of Dillon, Read & Company. This 
investment banking firm after World War I had taken the lead 


in floating the German bonds which put German industry in a 

position to fight another war. 

The men with whom Colonel Howard had already staffed the 
Economics Division clearly wanted the occupation of Germany to 
be carried out along quite different lines from those decided upon 
by the government departments at Washington. Co-ordination 
between the plans of the Economics Division and the policies laid 
down by Washington became more and more difficult. The constant 
carping and the mounting criticism of the official policies became 
so open that General Wickersham finally found it necessary to 
issue a formal order to all officers under his command, requiring 
them to stop their criticism and to support and ''advocate" the 
policies laid down in the Joint Chiefs of Staff Directive. 

Our special team was assigned to work in the Finance Division 
with Captain Norbert A. Bogdan, a charming fellow who had been 
a vice president of the J. Henry Schroder Banking Corporation, 
a firm in whose files the Nazi banking affiliations were still warm 
when the United States went to war. It was a bit of a relief to learn 
that our connection was to be only temporary and that, because of 
the rather fluid state of our mission, we could soon move over to 
Versailles and be assigned to SHAEF, There I was asked to pre- 
pare a staff study that resulted in General Eisenhower's sending 
out a major policy cable, designated SCAF 239, to the Combined 
Chiefs of Staff in Washington, stating that he considered it neces- 
sary to investigate further the flight of capital assets which German 
industrialists were spiriting out of the country to escape seizure. 
Then, even before the reply came back, SHAEF sent out another 
cable, this time to the War Department, announcing that in ad- 
vance of approval of the whole program by the Combined Chiefs 
of Staff our small team of investigators was being sent into the 
field. SHAEF asked for additional qualified personnel to be sent 
over from Washington to join us. 

Our next problem was to map out our moves to follow those of 
the armies. Since we were civilians attached to SHAEF, each of our 
movements into operational territory had to be cleared down the 
chain of command, like a pinball looking for the jack pot, through 
army group to army, and sometimes even to the particular corps 



and division in charge o£ the area we wanted to cover. We studied 
the top-secret operational plans and their allocation of geographical 
objectives to difTerent army groups. We projected our movements 
so that the centers of our investigations would fall one after the 
other along the line of advance of a particular army group. Most 
of our investigating in the end was carried out in General Bradley's 
Twelfth and Field Marshal Montgomery's Twenty-first Army 
Group areas. 


The Heavy Timbers 

GENERAL Eisenhower's armies between D Day in 1944 and 
V-E Day in 1945 slashed an incision across the body of Europe. It 
was radical surgery to remove what the Nazis had laid out through 
seven years of contriving and five years of miUtary occupation. No 
one who saw any part of the operation will be Hkeiy to forget how 
the details of life at all levels — bodies, personal effects, bathtubs, 
business papers, confidential government files, family skeletons — 
all lay exposed in the wake of combat. I remember particularly a 
family at Diisseldorf, living on the third floor of a building that 
had been cross-sectioned by a bomb. They always looked with 
some show of modesty both up and down the street before step- 
ping into their open-air bathtub. 

In a surprisingly short time, old habits returned, privacy re- 
asserted itself, papers were gathered up and tucked away, flowers 
and vines grew over debris. But for a while there were no secrets. 
In those brief weeks before the incision closed, the Allied govern- 
ments overlooked rights of privacy and constitutional immunities 
from "searches and seizures." Immediately behind the blade of 
Eisenhower's knife came the "T" forces, with their affiliated groups 
of specialists, to search for anything and everything that would 
throw light on the underlying causes of Germany's military out- 

This determination to probe and search was typical of the "nevcr- 
again" feeling that predominated- Allied policy in 1945 was full of 
solemn promises and **morning-after" resolutions. It would have 
been hard not to catch some of this spirit as we moved toward 
the forward areas to pick up the trail of the economic war lords. 



President Roosevelt had said a few months earlier that defeat of 
the Nazi armies would have to be followed by complete eradication 
of the v^eapons of economic warfare. After World War I there 
had been the same "never-again" resolves; and we had already 
witnessed a complete cycle ending in failure. Before we left the 
United States, the Economic Warfare Section prepared a report 
which analyzed the errors of the occupation after the other World 
War, and showed the measures that Germany had used to defeat 
the occupation and to play the Allies one against the other. I car- 
ried a copy of this report with me all the time I w^as in Germany. 
By mid-1947, I had already checked off the first twenty pages, 
paragraph by paragraph, week by week, in a pattern of repetition. 
But in the beginning, in 1945, we were open-minded and some- 
times even hopeful about our prospects. 

We knew that the economic policies for dealing with Germany 
had been prepared at Washington with some understanding of the 
ways in which reforms might be defeated. It was our intention to 
carry these policies along in the way that miners carry canaries to 
detect poison gases. We knew from the beginning of the occupation 
that once these economic reforms fell, other reform measures would 
not survive for very long. 

We were scarcely flying blind when we made the Ruhr our fore- 
most objective. The struggle over the Ruhr had brought the first 
rnajor breakdown of Allied policy in 1923 when Britain and the 
United States refused to back up the French occupation of the 
valley; and ten years later the financiers and industrialists o£ that 
area had boosted Hitler into the driver's seat. 

In recent years there has been so much confused thinking and 
pro-German propaganda about the place of the Ruhr in the Euro- 
pean economy that we have to keep in mind that this area is im- 
portant principally because it has very large deposits of good coking 
coal. Its growth as a steel center was a phenomenon of the 1920's, 
after World War L The Ruhr became the site of Europe's biggest 
steel plants -less for economic reasons than as part of a struggle for 
power between Germany and France. In the beginning it was 
French Lorraine and not the German Ruhr that was the chief 
center of Western European heavy industry. 


From the time Germany took control of Alsace and Lorraine in 
the War of 1870, up until the end of World War I, the Germans 
organized the steel industry of the combined Ruhr-Lorraine area 
strictly on the basis of economic and technical efficiency. They de- 
signed the steel plants and coke works to maintain the best balance 
of transportation facilities, centers of production, and outlets for 

Under this arrangement most of the blast furnaces were near the 
ore supplies of German-held Lorraine, and most of the coke works 
were near the coal supplies of the German Ruhr* This saved on 
transportation because in the production of pig iron three tons of 
Lorraine ore are required for every ton of coke. However, because 
iron ore is very heavy and coke is light and bulky, they built a few 
coke works in the Lorraine near the steel plants, and a few blast 
furnaces and steel works in the Ruhr near the coke plants. Thus a 
mixed shipment of ore and pig iron eastward from the Lorraine 
to the Ruhr, and a mixture of coal and coke westward from the 
Ruhr to Lorraine kept the railway trains and locomotives fully 
loaded in both directions. 

After World War I this efficiency of production yielded in the 
face of a German play for power. The Versailles Treaty had re- 
quired Germany to deliver to France seven million tons of coal a 
year for ten years. France depended upon a vast quantity of coal 
from the German Ruhr because the ore beds of Lorraine were too 
far from channel ports to make possible a switch to British coal. 
So reacquiring Lorraine meant little to France, industrially, unless 
access to Ruhr coal went with it. 

In 1913, before the war, the Germans had shipped nearly one third 
of their entire Ruhr and Rhineland coal output to the iron and steel 
plants of Lorraine. During 1922, although the Ruhr output was 
approximately the same as it had been in 1913, the deliveries to 
France were not even 70 per cent of the 1913 shipments. And that 
was the peak year. In 1919, 1920, and 1921, the deliveries totaled 
much less than half the 191 3 deliveries. 

Six months after the Treaty of Versailles went into effect, the 
German industrialists of the Ruhr and Rhineland had completely 
repudiated the delivery of fuel as reparations. 


A special conference was called to work out a new agreement. 

At the Spa Conference of July 5, 1920, the Allied negotiators faced 
a battery of German representatives who were destined to figure 
prominently in the economic debacle of the late 1920*5 and in the 
support of Hitlcr*s rise to power. In addition to the coal magnate, 
Hugo Stinnes, and Carl Bosch, slated to head the huge new I.G. 
Farben chemical combine, these leaders included Fritz Thyssen 
and his Emergency Committee of five other Ruhr industrialists; 
Gustav Krupp von Bohlen und Halbach and four other Krupp 
directors; Albert Vogler, director general of the Stinnes concern 
and member of the Reichstag; and two other noteworthy steel 
magnates, Florian Klockner of the Klockner combine and Otto 
Wolff, head of the Phoenix Works and the Otto Wolff complex* 
In retrospect, it was a Who's Who in the rise of the Nazis^ 

The Germans were ingenious in their explanation of why they 
could not ship more coal. They said they had to have some way of 
getting enough money out of it to hasten their economic recovery. 
Actually, their financial dif^tress was not caused by a lack of material 
goods inside Germany, but by the monetary inflation. The inflation 
had been given a shot in the arm when the German government 
at the insistence of the Ruhr industrialists paid out hundreds of 
millions of marks as indemnities to the iron and steel companies 
for their losses in ceding the Lorraine plants to the French. But no 
one asked the why of the inflation. German economic distress was 
accepted as a fact. The Germans went on to explain that they 
needed more food for their undernourished miners to enable them 
to increase production. 

The Allies gave in to the demands of the Germans. In the Pro- 
tocol of Spa issued at the conclusion of the conference, the Allies 
agreed to pay one dollar in gold for every ton of fuel delivered by 
Germany. The purpose of this payment was to provide more food 
as an incentive for the Ruhr miners. This payment was in addition 
to sizable loans which the Allies were already required to make to 
Germany under the Versailles Treaty. The loans were to make up 
the difference between the German domestic price of coal and the 
prevailing export price at British seaports. At the time of the Spa 
Conference this difference amounted to nearly ten dollars per ton; 


and the Allies agreed to continue advancing loans at this rate in 

addition to the one dollar per ton to feed the miners. 

Over the next six months Germany received about one hundred 
million dollars in combined payments and loans in return for not 
quite eleven million tons of coal. Thus what was nominally sup- 
posed to be reparations was in any practical sense tantamount to 
an ordinary sale of coal at a very good price. 

The shortage of coke shipments to France was not due to short 
production in Germany. Germany had suffered no war damage 
whatsoever inside its own borders during World War I. On the 
other hand, much of the iron-producing territory reacquired by 
France had been the scene of the bitterest fighting of the war. 
More people know Verdun as a battlefield than as a steel center. 
Nevertheless, it was the breakdown of German deliveries of coke 
to France, not failure of the French to rebuild their factories, that 
stopped French iron and steel production after 1920. 

The German Ruhr magnates were converting the greater part o£ 
Germany's coal production into coke for new German plants in 
the Ruhr. They were building an entirely new complex of iron 
and steel plants to replace those ceded to France after the war. 
The new plants in the Ruhr were to get the bulk of their ores from 
the high-grade deposits of Sweden, Spain, and Newfoundland. The 
extra costs of the long overseas haul were offset by German gov- 
ernment subsidies and indemnities. 

The purpose of this German strategy was destined to become 
clearer as the postwar adjustments of the 1920*5 unfolded. During 
the first years after the war, when coal was scarce in Europe, the 
German coal producers held the whip hand over France. Since 
the cost of coal accounted for three fifths of the cost of French pig 
iron, whoever controlled the cost of coal could control the competi- 
tive fate of French iron and steel. German coal producers, who 
also sat on the managing boards of the German state railways and 
the new steel firms, arranged exorbitantly high freight rates over 
the German railways from the Ruhr to the French border. At the 
same time, drastic cutbacks in ore importations from France pro- 
duced a further temporary reversal for the French industry. The 
new German plants got a good head start. 


In spite of the relief afforded by the Protocol of Spa, the German 
government and industrial leaders continued to drag their feet. 
On January ii, 1923, four years after the Treaty of Versailles went 
into effect, coal deliveries broke down. French and Belgian troops 
were sent into the Ruhr to compel deliveries of coal and coke at 
the rate required by the Treaty, which was only about 60 per cent 
of what Germany had been in the habit of shipping into the same 
area before the war. The German coal and steel industrialists coun- 
tered with new threats and demands. The German miners staged 
a sit-down strike. To keep up production in factories outside of the 
occupied Ruhr area, the Germans imported British coal through 
the port of Hamburg. At the same time, the German government 
appointed a coal commissioner to conserve coal. The commissioner 
announced that with suitable economics the stocks of coal in un- 
occupied Germany would last for nearly six months. Total imports 
of British coal into unoccupied Germany in March 1923 alone 
amounted to two million tons. On August 11, 1923, the British 
sent a note of protest to France complaining that the Ruhr occu- 
pation was hampering European recovery^ 

On August 12, 1923 Gustav Stresemann became Chancellor and 
Foreign Minister. To settle the matter of the Ruhr occupation he 
held a conference with the same group of industrialists who, a few 
years later, were to take the lead in forming Germany's largest iron 
and steel combine, the Vereinigte Stahlwerke or United Steel 
Works, with the help of loans from the United States. The ques- 
tion in the minds of the German industry men was how to establish 
a superior bargaining position before receding in the face of French 
insistence. One of the steel men, Otto Wolff, stated that Germany 
could indeed co-operate with French industry, but that France 
must first place at Germany*s disposal the money to help recon- 
struct her economic life. 

The occupation of the Ruhr resulted in a deadlock. The German 
government claimed there was no money in Germany to pay the 
Ruhr mineowners for the coal they were expected to ship. The 
mineowners lamented that they would be bankrupt if they could 
not obtain payment for their deliveries to France. 

The deadlock was broken when the United States stepped in 


and offered the Dawes Plan, which called for balancing the Ger- 
man budget and an initial loan of two hundred million dollars to 
stabilize the German currency. The plan was approved by the 
Reichstag on April 16, 1924. The delivery of "reparations" was re- 
sumed for a time, while the Germans moved on to the next stage 
of their resistance. At the very time that the Germans were pro- 
testing inability to meet reparations, the entire country was quietly 
rearming under the very noses of the occupying powers. 

After several years, when coal had again become plentiful on the 
European market, the German groups had already developed an- 
swering moves to block any attempt of the French or the Belgians or 
the Luxembourgers to compete with the new German setup. During 
the years of coal scarcity the German steel producers took the lead 
in organizing an international association to guarantee the steel 
industry of each wxstern European nation a fixed share in the 
export markets for all types of steel products. 

In return, the steel makers of each country agreed to limit pro- 
duction to a fixed quota, with cash penalties for production or 
exports beyond the agreed amounts. This association, known in 
German as the Internationale Rohstahlgemeinschaft, in French as 
the Entente Internationale de TAcier, in English as the Interna- 
tional Steel Cartel, with its offices in a stone building two blocks 
off the Grand'Rue in Luxembourg, became the privately organized 
policing system that governed the steel trade of the world from 
1926 to 1939. Within a very few years after its formation, the 
Germans ran the cartel and could shape its policies to meet their 

These were some of the main steps by which a small group of 
German industrialists, deriving their power from ownership of 
coal mines, steel works, and chemical plants in western Germany, 
contrived to avoid the economic consequences of Germany's defeat 
in World War I. It is true that the industrialists did not take matters 
directly into their own hands. The steps themselves had to be taken 
by governments. The Treaty of Versailles was an act of the Allied 
governments, representing their combined judgment of how the 
issues of World War I ought to be decided. But what actually 
happened after that was dictated not so much by the diplomatic 


treaties of governments as by the bargaining of powerful business 
groups. The German businessmen were interested first in their 
companies, not in national political obligations. The German steel 
companies whose Lorraine plants had been turned over to FrancCj 
and the coal producers whose output was to be shipped to France, 
were not impressed by the argument that Germany as a nation 
somehow "owed" France as a nation some recompense for war 
damage. If they gave up their companies' property for a national 
debt, it was their balance sheets that showed the loss. 

The horizontal separation of private interests from government 
policies went even further. The struggle of the interwar period 
was not simply a clash between French interests on the one side 
and German interests on the other. During the development of 
the Ruhr-Lorraine industrial complex, like-minded industrialists 
in France and Germany had become directors of jointly owned and 
jointly controlled financial, industrial, and distributing enterprises. 
In many cases common views on questions of economic organiza- 
tion, labor policy, social legislation, and attitude toward government 
had been far more important to the industrialists than differences 
of nationality or citizenship. After 1870 the interdependence of the 
French and German iron and steel industries led the owners to 
work together despite national differences, although the private 
activities of the French owners were, in many instances, in direct 
opposition to French public policy. It is curious to note that only 
the French appeared to have this conflict between public policy and 
private activities. On the German side, complete co-ordination seems 
to have been preserved between national and private interests; 
between officials of the German Republic and the leaders of Ger- 
man industry and finance. 

During World War I the de Wendels, the influential French- 
German banking and industrial family which headed the French 
wing of the International Steel Cartel through their Comite des 
Forges and whose members had sat in the parliaments of both 
France and Germany were able to keep the French army from 
destroying industrial plants belonging to the German, enterprises 
of the Rochling family. These plants were located in the Briey 
Basin, a Lorraine ore field then in German control. 


The Rochling family, with their powerful complex of coal, iron, 

steel and banking enterprises in Germany, has for generations 
played in close harmony with the de Wendcl family. For a century, 
the descendants of Christian Rochling have dominated the in- 
dustry and commerce of the Saar Basin. It was Hermann Rochling 
who arranged the return of the Saar to Germany in the plebi- 
scite of January 1935 by organizing the Deutsche Front, which de- 
livered 90 per cent of the votes to the Nazis. Though seventy-two 
members of the Rochling family have survived two world wars 
and are still active in the business of the Saar today, two other mem- 
bers of the family, Hermann and his brother Robert, deserve a 
special place in history. During World War I, Hermann, a cavalry 
captain in the German army, and Robert, a major, had been put in 
charge of production in the Briey Basin. After the war, when the 
brothers Rochling moved out of the areas which had to be ceded to 
France under the Treaty, the two of them carried away bodily a 
couple of large steel plants. 

Conceiving this grand larceny to be something in the nature of 
a war crime, the French government tried the brothers Rochling 
in absentia and sentenced them to forty years in prison* But the 
German government never would give up the Rochlings to the 
French. For the next twenty-two years the brothers were under 
this cloud as far as the French government was concerned. On the 
other hand, as far as the French steelmakers* association, the 
Comite des Forges, and in particular the de Wendels who headed 
the Comite, were concerned, business as usual — or in this case, 
business as unusual — prevailed. In the end even the French gov- 
ernment weakened for business purposes, though the war-crime 
sentence remained. When it came time for France to build its 
impregnable Maginot Line, who should be called in to supply 
steel and technical assistance but the German firm of the brothers 
Rochling. If the French behaved in this case as did the Americans 
during World War II in the case of insurance coverage on war 
plants, they doubtless placed plenty of guards to protect the security 
and secrecy of the Maginot Line construction from the prying eyes 
of the general public while the blueprints rested safely in the hands 
of the only people to whom they mattered: to wit, die enemy. 


Now comes the outbreak of World War IL The French army 

marching into the Saar during the "phony war" period in 1939, 
received orders not to fire on or damage the plants of the "war 
criminals," the brothers Rochling. In 1940 came the blitz and the 
fall of France. The Vichy government passed a decree exonerating 
the Rochiings and canceling their forty-year prison sentences. In 
1945 came the bh'tz in the other direction. As we were starting out 
to round up the key industrialists, the Rochiings fell once more into 
the hands of die French; but this time it was the French army, 
acting in its role of representative of French public policy. Again 
the order of the day was "the Rochiings, war criminals." In 1947, 
Hermann Rochling was tried by an international court in the 
French zone and convicted of v^aging aggressive war. He was 
sentenced to seven years imprisonment. Robert had died before he 
could get his criminal record in order; but since there are still 
seventy-two Rochiings to go, it is not yet possible to write the final 
chapter to their history. 

In 1945, in contrast with the close w^orking arrangements kept 
through at least two wars by the Germans and the French iron 
and steel groups, the French public poUcy seemed still to have a 
healthy dislike for any setup that woald leave German industry 
dominant in western Europe, French officers like Rene Sergent, 
who became head of economic and financial affairs for the French 
group in the Control Council at Berlin, seemed to distrust the in- 
tentions of Germany's industrial leadership* The Germans, accord- 
ing to Sergent, had estabUshed quite a record for insisting upon 
and carrying out measures to prevent the Allied powers from ren- 
dering Germany harmless. Of course, no one should expect a 
German political or business leader to want to be harmless. Most 
Germans who meant anything in German industry or politics 
after World War I considered it an act of patriotism to evade the 
terms of the Versailles Treaty. In fact, in the years after Versailles, 
the German courts would entertain prosecutions for the crime of 
high treason against any German citizen who concerned himself 
with the execution of the Treaty *'in such a way that a foreign 
power was advised of infractions." 

Clearly, the Germans themselves would expect to be supervised 


and watched. It would be a point of honor, as well as self-interest, 

to defy detection, and to camouflage or conceal their intentions. 
From our discoveries during three years with the Economic War- 
fare Section, we had already narrowed down the list of Germans 
who carried the major responsibility for what had happened. The 
list was impressively small; for somewhere among a group of not 
jnore than a hundred men were those who had done the lion's share 
of the planning and had carried out the world-wide negotiations 
that made the economic preparations for war a success. Still, even 
a list of a hundred important individuals, controlling sixty or 
seventy of the biggest companies, was too large for pinpoint inves- 
tigation by our small crew- Were there some five or ten or twelve 
men among these who stood head and shoulders above the others 
either in knowledge or in degree of responsibility for the German 
efforts? Perhaps the records of the International Steel Cartel at 
Luxembourg would furnish clues to help us concentrate our atten- 
tion first on a few individuals and a few companies in Germany. 
But Luxembourg was "liberated'* territory. One could not simply 
walk in and open up filing cases and take a look. 

In March 1945, Luxembourg as yet had no government of its own. 
The Grand Duchy was under the protection of an Allied Military 
Mission, headed by an American, Colonel Frank E, Frazer. To get 
permission even to negotiate with the Luxembourgers for a look 
into the records^ we had to show how the inquiry would contribute 
toward investigations in Germany itself, which fell within the 
mandate of General Eisenhower*s cable to the Combined Chiefs 
of Staff, SCAF 239. It was a hen-and-egg paradox. To get what 
we needed from the Luxembourg records, we had to know what 
we were going to find out in the Ruhr. The Ruhr at the moment 
was bulging with Wchrmacht units. 


The Fraternity Brothers 

ON April 14, 1945, the Grand Duchess Charlotte returned to re- 
sume her constitutional sway over the Grand Duchy of Luxem- 
bourg. This little Graustark or Ruritania with a thousand square 
miles of territory and three hundred thousand inhabitants, squeezed 
in between Germany on one side and France and Belgium on the 
other, is a maze of contrasts from almost any standpoint. Its official 
language sounds hke Flemish with a dash of French, and looks 
like German. People on the street thank you with a mixed French- 
German "merci, viel danf(* or "merd viel mahir But most of the 
people who speak this mixed language are more violently anti- 
German than their French neighbors to the west. 

In contrast with the unproductive German terrain immediately 
to the east, which looks exactly the same so far as soil and contours 
are concerned, most of Luxembourg, and especially the northern 
half, might be called fiercely agricultural, with very high produc- 
tivity. Even though the northern half of the Grand Duchy was 
overrun and most of its farmhouses destroyed during the Battle of 
the Bulge, while the German territory to the east was practically 
untouched, Luxembourg's agriculture bounced back immediately 
after the second Hberation early in 1945. Within two years Luxem- 
bourg was 90 per cent self-sufficient in food. The Germans across 
the line, after two years, were still pleading for food to stave off 

The Industrial Revolution had come to Luxembourg with the 
discovery of domestic deposits of minette ore in 1870. This was the 
same year in which Bismarck's armies snatched the minette ore 
fields and other resources of Alsace-Lorraine from France on behalf 


of the growing Reich. But for many years Luxembourg's industry 
kept its independence from German control. The largest steel 
firm, the Acieries Reunies de Burbach-Eich-Dudelange, known as 
"Arbed/* even reached into German territory. Just before World 
War I, Arbed got control of enough coal-mining properties in Ger- 
many near Eschweiler in the Aachen Basin to assure a full supply 
of coking coal to the Luxembourg mills. Arbed next established 
the largest steel cable works in Europe, the Felten & Guilieaume 
Carls werk, at Cologne on the Rhine. Between the two wars, how- 
ever, this independence had become obscured while Luxembourg 
played host to the steel cartel. 

A week before the Grand Duchess returned, a small group of 
our men from SHAEF headquarters finally got permission to enter 
Luxembourg and negotiate a trip through the files of the Inter- 
national Steel Cartel. Though they wanted to look for the particu- 
lars of German control and to identify the Germans who had been 
pulhng the strings since the cartel was organized in 1926, our men 
had to proceed carefully because nothing could be done without 
the voluntary permission of the carters officers. 

Quite by accident, our team arrived on a Saturday, and simul- 
taneously with a visit by General Eisenhower. The officials of the 
steel cartel somehow gained the impression that General Eisen- 
hower's visit had been made especially to lend additional high-level 
sanction to the visit of the Department of Justice officials attached 
to SHAEF. Hector Dieudonne, secretary of the cartel, and the other 
top cartel officials, who were heading for the country over the week 
end, told Eric Conrot^ the office manager, to "give every assistance** 
to the gentlemen from SHAEF. M. Conrot unexpectedly took the 
instructions quite literally. He opened up all the filing cabinets in the 
office of the cartel and invited the gentlemen from SHAEF to make 
themselves at home for the entire week end. They did. 

It is not hard to imagine the hair-pulling among the top officials 
when they returned Monday morning. They found an extremely 
weary and sleepless investigative crew sitting among a mass of 
folders from which an index had been compiled of close to four 
thousand documents. The investigators expressed their gratitude and 
said they would very much like permission to make photostats of 


the four thousand documents. With a great deal of grinding of teeth 
and scarcely restrained mutterings at M. Conrot's misunderstanding 
of diplomatic language, they finally gave their consent, but not with- 
out making a protest that their hospitality had in some way been 
abused by what amounted to "police" methods. 

The four thousand documents had opened up a panorama of 
international ties among all the major steel firms of the world, 
including the details of their working relations with the Germans 
from the time the cartel was organized. 

While the crowds were milling about in front of the Royal 
Palace in a tremendous demonstration over the return of the Grand 
Duchess, M. Aloyse Meyer, managing director of the Arbed steel 
combine, returned quietly to the city of Luxembourg from Ger- 
many. He had left when the Germans left, but came back with the 
explanation that he had been kidnaped. 

M. Meyer for years had been more than the managing director 
of a large steel enterprise. Ever since 1928, he had been permanent 
chairman of the International Steel Cartel, and during the German 
occupation he had been appointed by his long-time German busi- 
ness associate, Ernst Poensgen, to be the leader of the steel industry 
Wirtschaftsgruppe in Luxembourg. Pocnsgen, principal figure in 
the United Steel Works of Germany, had played the leading role 
in establishing the International Steel Cartel in 1926. During 
World War IT, Poensgen was appointed to head the steel in- 
dustry association, one of the main divisions of the Nazi Reichs- 
gruppe Industrie, an officially sanctioned national association of 
manufacturers. It was not surprising that he chose his Luxembourg 
associate, M. M(^yer, to handle the aflFairs of the Wirtschaftsgruppe 
in occupied Luxembourg. 

Upon the occupation of Luxembourg by the Germans in 1940, 
the Arbed firm had not been taken over directly by the Germans, 
but continued to function under the direction of Aloyse Meyer 
throughout the occupation. The other two Luxembourg steel com- 
panies, Hadir and Rodange, were taken over by the Germans when 
the managers r<! fused to collaborate. 

After the liberation of Luxembourg, nineteen men who were 


department chiefs, production men, and engineers of Arbed were 
dismissed for collaboration, while Meyer remained as head of the 
firm. The official attitude was that Meyer had become a hero by 
keeping his firm intact during the war and thereby preventing the 
removal of Luxembourg workers from the local steel plants to 
Germany for work in the German plants. Some officials even 
alleged that the Arbed management had arranged to slow down 
production and thereby sabotage the German war effort, but the 
comparative figures for Arbed and the other two Luxembourg 
firms did not bear this out. Actually^ limits by the Germans on 
coal exports accounted for the same reduced production rate in all 
the Luxembourg mills. 

What the Luxembourgers chose to do with Aloyse Meyer did 
not change what was on the papers in the files of the steel carteL 
It was not necessary to wait for photostats of all the thousands of 
documents to realize that we now had an enlarged picture from 
which to work. Here was something that had gone beyond mere 
German resistance to the occupation measures of the Allied powers 
after World War 1. It was a concrete example of hov/ leading 
German manufacturers had gone about the job of recapturing 
control over industries and markets and making Germany the 
"industrial hub of Europe." This was not resistance, but a counter- 
attack that included enlisting the help of industrialists in other 
countries. Here again the step-by-step history threw some light on 
what had happened, but at the same time raised questions about 
why the others let the Germans get what they wanted. 

The mid-twenties were remarkable for German industrial com- 
bination. They marked the formation of the United Steel Works 
in Germany, as a combination of the four biggest steel producers* 
Ernst Poensgen, Fritz Thyssen^ Otto Wolff, and the others who 
drew this combine together had managed to get over a hundred 
million dollars from private investors in the United States. Dillon, 
Read & Company, the New York investment house which brought 
Clarence Dillon, James V. Forrestal, William H. Draper, Jr., and 
others into prominence, floated the United Steel Works bonds in 
the United States behind a glowing prospectus which declared that 
the United Steel Works Corporation (Vereinigte Stahlwerke) "will 


be the largest industrial unit in Europe and one of the largest 

manufacturers of iron and steel in the world, ranking in produc- 
tive capacity second only to United States Steel Corporation/' The 
formation of United Steel gave its management tremendous power 
in Germany: enough to carry through without delay the organiza- 
tion of the German domestic steel cartel, and to guarantee the 
"good behavior*' of all German steel companies in their agreements 
with foreign firms. In 1925 the LG. Farben chemical combine was 
formed by six of the biggest German chemical producers and 
the next year the International Steel Cartel was created through a 
private international treaty or working arrangement among the 
principal steel producers of the world. 

The events were not unrelated. All of these organizations had 
a number of directors in common and were part of a privately 
managed "rationalization'* scheme for controlling the basic indus- 
tries of Europe and regulating the international trade in the products 
of the basic heavy industries. In the case of steely the motives of the 
German groups were clear. Cut off by political boundaries from 
organizing a German-controlled steel industry based on the most 
efficient use of resources, the German managers who formed the 
new combines aimed to improve their commercial position by 
establishing control over the market. If they could not have economy 
in production, they could still run a profitable business provided 
they could control domestic and international marketing conditions 
by agreement. They could not afford to let possible competitors 
in France, Belgium, Luxembourg, Britain, or the United States 
start a struggle for markets. These others would have advantages 
based on more efficient production or distribution facilities, espe- 
cially while the Germans were setting up their plants designed to 
use ores from far away points overseas. 

The loans which the bigger operators got from Britain and the 
United States to put them on their feet after the inflation also 
enabled them to pay prices far above the market values to buy out 
troublesome competing firms. In effect, the foreign loans and 
German government subsidies allowed the leading companies, such 
as United Steel Works, Mannesmann, Krupp, Good Hope and 
Rochling, to substitute private regulation and elimination of com- 


petition for the technical efficiency they had lost when their plants in 
Alsace and Lorraine v-^nt back to French control after 191 8. 

After combinations like United Steel and I.G. Farben had pulled 
together under common control a great proportion of the existing 
capacity, they built still more plants and added more machinery. 
But the amount of goods manufactured did not grow in anything 
like the same proportion. At the height of the boom, in 1928, the 
w^hole German steel industry was running at only a little over two 
thirds of its capacity. In other fields of heavy industry, actual pro- 
duction was as low as 10 per cent of the instalJed capacity. In the 
construction of locomotives, a field monopoUzed by the Borsig and 
Henschel combines^ output at the height of the boom was only 
5 per cent of capacity. Later, in World War II, when Henschel 
specialized in "Tiger" tanks and 88^millimetcr guns, the formerly 
idle capacity came into its own. 

Unfortunately, the bondholders who put up the money for these 
increases in heavy industrial capacity never got the benefit of the 
supposed "strength" and ''soundness'* of the companies. The low 
output in relation to the large capacity meant a huge unpaid debt 
to foreign investors who had bought the bonds. The companies 
were technically bankrupt until saved by government subsidies; 
but the subsidies w^ere arranged only after payments to foreigners 
had been forbidden by foreign-exchange regulations. After piling 
up a record like that, a private citizen might have trouble getting 
money even from a loan shark. 

From a long-run standpoint, the records indicated that the or- 
ganization of the German iron and steel industry was wasteful. A 
commission known as the Enquete Ausschuss had been appointed 
by the German government early in the i930*s to investigate condi- 
tions that had led to the industrial depression- The commission 
had found that the steel industry was clumsily put together and 
Was overexpanded in proportion to Germany's light industry and 
consumer-goods production. By fixing their sights on control of 
domestic and international markets, instead of meeting the eco- 
nomic needs of German industry for iron and steely the German 
steel industry had put itself into a position where control must be 
maintained over international markets or the industry must go 


bankrupt* But German steel products could be distributed m inter- 
national trade only 50 long as no foreign competitors undercut 
Germany by competitive selling. 

The Nazi Economic Ministry later gave due recognition to Dr. 
Poensgen for his services to the German iron and steel industry 
through his organization of the national and international steel 
cartels. October 17, 1941, Poensgen's seventieth birthday, was cele- 
brated in the Stahlhof at Diisseidorf as "Ernst Poensgen 's Great 
Day." As the Deutsche Bet-gwerJ^s-Zeitung reported, so many lead- 
ing personalities of business and industry had seldom been seen 
together. The Nazi Economic Minister, Walther Funk, was per- 
sonally present to award Poensgen the Eagle Shield o£ the Reich 
which put him, as Funk said, ''into a class with men like Robert 
Bosch, Carl Duisberg, Emil Kirdorf, Albert Pictsch and Krupp von 
Bohlen und Halbach " Funk paid tribute to Poensgen *s contribu- 
tion in organizing the cartels which he said 'Svill have great impor- 
tance in the reconstruction of Europe after this war." Concluding, 
Funk said: ''The Fiihrer has ordered me to present to you the 
Eagle Shield as a special tribute to an tconotnic leader who has 
performed extraordinary services in arming Germany.'* 

When the first international agreement was signed on Septem- 
ber 30, 1926, between leading iron and steel producers of France, 
Belgium, Luxembourg, the Saar and Germany, all the sponsors of 
the cartel had joined in declaring that it was a first step in the 
formation of an "economic United States of Europe/' 

Dr. Poensgen and his helpers, however, had more immediate 
interests. They had contrived the original terms of the organization 
so as to play upon two strong motives: fear of German competition, 
even though the German mills would have been able to compete 
only through money borrowed in the United States and Britain; 
and the desire of the "leading" firms in each country to enlist the 
power of German industry as an ally in crushing their own domes- 
tic competition. Membership in the cartel was not open to individual 
companies, but only to the national associations to which they 
belonged. These associations bound themselves to limit their entire 
national steel production and the total volume of sales in domestic 
and international markets. Domestic sales were controlled by all 


parties agreeing not to undersell in each other^s countries, so leaving 
the member companies only the nonmember companies within 
their own boundaries as competition, to be eliminated by drastic 
short-term price cutting or by purchase. The international markets 
seemed secure because, although the charter members in 1926 
accounted for only 30 per cent of the world's ingot steel produc- 
tion, they accounted for nearly two thirds of the world's exports. 
All members agreed that in foreign markets they would not under- 
sell each other but would undersell any nonmember in order to 
drive him out of the market. 

In order to get the cartel started, the German group at first ac- 
cepted a production quota ior themselves which they considered 
very low in proportion to their actual steel capacity. The German 
quota for the first year was a little over 40 per cent of the tot2L\ ior 
all five groups. The cartel had been in existence only a few months, 
however, when Paul Reusch, chairman of the German national 
group, and also a director of the Good Hope steel works, said that 
Germany would try to get an increase in its quota and that the 
original low quota had been a concession to get the agreement 

Under the cartel agreement, excess production and sales by any 
national group, beyond the established quota, was subject to a 
penalty at various rates up to four dollars a ton. Any fines paid 
by members for producing and selling too much were to be used 
as a fund out of which to recompense cartel members who pro- 
duced and sold less than their allowable quotas. This provi- 
sion seems to have lulled most of the members into a com- 
fortable and careful state. Most of them stayed well within their 

But not so the Germans. In the first year of the cartel's existence, 
the Germans paid fines amounting to 110,038,000, covering excess 
production of 3,372,000 tons. This excess tonnage alone was almost 
equal to the entire annual output of the Belgians. The fines paid 
by the Germans accounted for 95 per cent of the total penalties 
incurred by all the original cartel members during the first year. 
The advantage to the Germans showed up in later years. With 
their greatly expanded capacity they next threatened to disrupt the 


organization unless the quota scheme was revised to give them a 
higher quota. Before the first year was out, the Germans, in addi- 
tion to a higher quota, got an agreement that 72 per cent of their 
quota should be regarded as production for German domestic con- 
sumption, on which the penalty for excess production was to be 
only half that established in the 1926 agreement. In September 1927, 
the penalty on excess production for domestic consumption was 
again cut in half. The full penalty was to be paid only on the 
28 per cent of German output which was to be regarded as pro- 
duction for export. 

In the second year of the cartel, 1927, German steel production of 
16,311,000 tons was nearly 4,000,000 greater than in 1926. France 
in the same year decreased production by 54,000 tons, down to a 
total of 8,403,000 for the year. From this point on, Dr. Poensgen's 
^^extraordinary services in arming Germany" continued with the 
same kind of success. Alternating threats and concessions con- 
sistently increased the ability of the German group to control quotas 
and limit the production of the non-German members almost at 
wilh Small wonder that when the International Steel Cartel was 
first set up, in September 1926, just three weeks after Germany had 
joined the League of Nations, a member of the Reichstag, Dr. 
Reichert, declared that, by means of this agreement, "Important 
consequences of the Versailles Treaty can be mitigated." As we 
wound up our work in the files of the Steel Cartel, we could see 
that this arrangement had gone very far indeed in "mitigating the 
consequences** of the Versailles Treaty. 

By 1938, about 90 per cent of all iron and steel shipped in inter- 
national trade was under the control of the International Steel 
Cartel The membership by that time had been expanded to include 
the major steel producers in Austria, Poland, Czechoslovakia, the 
United Kingdom, and the United States, but the Germans were 
still running the show. What could one of the non-German groups 
hope to get out of membership in the cartel? 

The American firms went to some legal risk in order to join* 
Among the documents we photostated at Luxembourg were mem- 
oranda of agreements in which it was said that the American 
concerns were unable to sign the formal agreements for division 


o£ territories and restriction o£ markets because of the antitrust 
laws, but that a verbal agreement to the same effect had been 

The records showed that as the activities of the International 
Steel Cartel expanded it had become obvious to the Europeans that 
without the co-operation of American steel companies they could 
not hope to maintain their control over international markets. 
The tremendous productive power of the American steel industry 
was the problem. If American producers were free to sell steel 
products in international trade at competitive prices, instead of 
complying with the fixed prices and limited marketing areas 
worked out by the cartel members, then every time the others got 
the world price up to a comfortable and profitable level the Ameri- 
can outsiders could undercut and cash in^ 

The European group did not really need to worry, however. 
The three biggest American producers, United States Steel, Bethle- 
hem, and Republic, had their own reasons for wanting to join. From 
their standpoint, the co-operation of the European producers in 
blocking or policing the activities of American independents would 
help maintain and increase the Big Three's control over the 
American domestic market. The independents, wherever they tried 
to do business in the rest of the world, would find themselves 
hemmed in by the "one for all and all for one" spirit of the 
cartel members, and by the "difficulties*' they would encounter 
in the form of foreign government regulations and red tape. 
A little of this experience might make the independents more 
amenable to "reason'* where the organized firms were concerned; 
and this would be reflected even in their behavior at home. But 
first, the Big Three had to catch their rabbit. 

The clause in the international agreement which presented the 
greatest stumbling block to the American group was Article IV 
of the export agreement, which read as follows: 

The contracting parties accept the responsibility for the engage- 
ments undertaken under the agreement both for themselves and for 
outsiders in their repective countries, for the present as well as 
for the future. They shall be debited with these outsiders* exports 
and shall be responsible for the payment of penalties in respect of 


excesses. Both contracting parties shall establish a list of the present 
outsiders in their territories and shall report as soon as possible 
about the appearance of new outsiders on their markets. 

Up to the end of March 1938, only 58 per cent of the American 
exports in the heavy steel group were made by members of the 
Steel Export Association. Since 42 per cent of the exports were 
made by outsiders, the members of the Steel Export Association 
had refused to accept responsibility for keeping all American 
exports within the quota allotted by the cartel to the United States. 
By June of 1938, however, the position of the American insiders had 
progressed to the point where they felt it ^vouki be possible to give 
partial guarantees of the good behavior of the Amxrican outsiders. 

At a meeting held in Paris on June 14, 1938, an agreement was 
reached between the Joint Co-ordinating Committee of the Inter- 
national Steel Cartel and a delegation from the Steel Export Asso- 
ciation of America, representing United States Steel, Bethlehem, 
and Republic. At this meeting the Big Three accepted uncondition- 
ally the terms of the 1937 agreement which had brought the British 
Iron and Steel Federation into the cartel. The Steel Export Associa- 
tion of America agreed, on behalf of United States Steel, Bethlehem, 
and Republic, not only that these three firms would abide by the 
quota agreements of the cartel, but also that they would accept re- 
sponsibility (as part of their own quota) for some exports by Ameri- 
can outsiders. The Big Three would charge against their quota any 
shipments by independent American firiTis, up to an amount not ex- 
ceeding 10 per cent of the quota. If the outsiders' shipments 
amounted to more than 10 per cent but not over 20 per cent of 
the American quota, the Big Three agreed to charge half of the 
excess against their own quota. But the Big Three did not feel able 
to assume the penalties for outsiders* .shipments beyond 20 per cent 
of the American quota. As in all things, even insiders have to ac- 
cept slow but steady progress as the means of getting what they are 

Negotiations on behalf of the American group in 1938 were con- 
ducted principally by Benjamin F. Fairless, president of United 
States Steel; Eugene G. Grace, president of Bethlehem Steel; and 
Tom Girdler, chairman of the board of Republic Steel. The Ameri- 


can group undertook to try to bring ten additional smaller American 
producers into the agreement by having them join the Steel Export 
Association. They arranged to have two representatives of the Steel 
Export Association remain in Europe to continue the relations 
between the Steel Export Association and the International Steel 
Carteh These were Messrs. J. 0» Cutwater, president of the Steel 
Export Association, and William B. Todd, who were to work to- 
gether with the British group through Mr. Ian F. L. Elliott, repre- 
sentative of Sir Andrew Duncan's British Iron and Steel Federation. 
Mr. Elliott was to turn up several years later as a representative of 
the United States on the international control authority for the 
German Ruhr; but at the time his was just one name among many. 

More important to us at the moment was the tie-in between 
Luxembourg and Germany. Despite appearances, Luxembourg, with 
its thirteenth-century stone parapets and parrot-cage sentry boxes, 
and its hero, Aloyse Meyer, could scarcely be dismissed as comic- 
opera material. According to the cartel agreement, the chairmanship 
of the managing committee was supposed to rotate annually among 
the participating countries. Actually, the headquarters remained 
permanently fixed in offices belonging to the Arbed steel combine in 
Luxembourg. When the first chairman of the cartel was killed in an 
accident in 1928, he was succeeded by Meyer, who continued as 
chairman of the cartel until its activities were interrupted by World 
War IL 

For years Aloyse Meyer, as head of Arbed, had been a director 
of Arbed's subsidiary in Germany, the large Felten & Guilleaume 
cable works. Working with M. Meyer, and serving as chairman 
of the board of directors of Felten & Guilleaume, was Baron Kurt 
von Schroder, Hitler's banker. As far as we were concerned, the 
line from M. Meyer and Arbed and the International Steel Cartel 
to von Schroder s private bank at Cologne could have been as thin 
as a filament of spider's web. We were looking for the spider. 


Hare and Hounds 

GOING into Germany from France and Luxembourg was like 
entering a tunnel. The friendly flag-waving of children and grown- 
ups that enlivened the dusty, jolting ride through towns and coun- 
tryside in the "liberated" territories gave way abruptly to a black, 
empty feeling of being alone, moving toward one distant objective. 
That is how we felt as we approached the German city of Bonn 
the afternoon of April i6, 1945. Nearly a month before, the "T'* 
force party at Cologne had reported bad luck at the "bank of the 
cartel kings," Baron Kurt von Schroder's bank. The building at 
No. I Laurenzplatz, near the cathedral, was a wreck. The vaults and 
records were under twenty feet of rubble and twisted steel. How- 
ever, the steel cartel files at Luxembourg had given us the location 
of Baron von Schroder's villa at Bonn, fifteen miles south of Co- 
logne; and we decided to try there. 

Nobody was living in the battle-damaged villa when we dropped 
in that April evening. In a damp cellar room we found a stack of 
papers, some baled and some loose. The pile was about four feet 
high and ten in diameter. On top of one bale, under a stack of 
letterheads, was a folder of letters addressed to Baron von Schroder, 
some in his capacity as a leader of the Nazi Party, and some in his 
capacity as a lieutenant general in the SS Black Guards. Quite 
a few of the letters were on elegant stationery with a letterhead 
that needed no address or telephone number — a chastely engraved 
"Reichsfiihrer^^'* was enough. The scrawled signature, "H. Himm- 
ler," was simply an added flourish. 

The files and account books, all bearing the mark of the Bankhaus 
J. H. Stein (founded 1790), of Cologne, appeared to be a few tons 


out of the many that had comprised the working files of the bank. 
Their position near the furnace in our host's house did not neces- 
sarily mean that he considered them trash. We found very often 
in Germany that the speed of the advance had been consistently 
underestimated by Germans of all ranks. Nothing else would ex- 
plain their common failure to carry through simple precautions like 
burning papers or blowing up bridges. 

The letters from Heinrich Himmler to Baron Kurt von Schroder 
were interesting but monotonous. The man seemed always to be 
asking for money. Nor was he interested in small change. The 
amounts were nice round figures running into the hundreds of 
thousands and often millions of reichsmarks. 

The Schroder family of Hamburg, into which Baron Kurt von 
Schroder was born in November 1889, had been bankers for gen- 
erations. In a preceding generation, Baron Johann Heinrich von 
Schroder had moved to London, adopted the anglicized name, 
J. Henry Schroder, and developed an extensive business financing 
overseas trade, especially with Latin America. 

Another member of the family, Baron Bruno von Schroder, 
Kurt*s cousin, born in Hamburg in 1S67, moved to London early 
in life but retained his German citizenship until 1914 when he be- 
came a British subject. Baron Bruno headed the banking firms 
J. Henry Schroder & Company of London, and the J. Henry 
Schroder Banking Corporation of New York until his death in 1940, 
when he was succeeded by his son, Helmuth W. B. Schroder, the 
present head. 

There appeared to be no community of ownership between the 
Stein Bank of Cologne and the Schroder Banks of London and 
New York, though the two groups acted as correspondent banks for 
one another and participated jointly in so many deals that what the 
Germans call an Interessen Gemeinsckaft, or community of interests, 
existed between them. The pattern for this parallel action had been 
laid in 1914 when the British closed down German banks in London, 
but allowed the Schroder firm, headed by "British subjects," to 
operate through the war. 

The list of major clients of the Bankhaus J. H. Stein was a roster 
of west German heavy industry. The records left no doubt that the 


Stem Bank had been in a good position to help the London firm to 
live up to its reputation as the bridge between London's "City" and 
the industry of the Rhineland and Ruhr. 

Among the number of threads that had made us decide to pay 
a call on Baron Kurt von Schroder and his bank had been an argu- 
ment back in England, at Bushy Park, when we were planning our 
itinerary. I have already mentioned that for a time we were assigned 
to work in the Finance Division of General Wickersham's head- 
quarters with Captain Norbert A. Bogdan, vice president of the 
J» Henry Schroder Banking Corporation of New York. Captain 
Bogdan had argued vigorously against investigation o£ the Stein 
Bank on the ground that it was "small potatoes.'* We should con- 
centrate our efforts on bigger targets, such as the Deutsche Bank 
and the Commerz Bank. To waste time on small-scale private banks 
would discredit our investigations. We had noted, however, that the 
day after this outburst two of the permanent members of Captain 
Bogdan's staff requested military travel orders to Cologne to investi- 
gate the Stein Bank. This was an unusual apphcation. Since Cologne 
had not yet fallen, it was tantamount to a request to accompany 
the Forces immediately behind the combat units* The Intelli- 
gence Division blocked that one. 

Another thread had been the business collaboration of many years* 
standing between Baron Kurt von Schroder and a very good friend 
of Franz von Papen, Gerhardt A. Westrick. Dr. Westrick was a 
prominent German lawyer and a member of the law partnership of 
Albert & Westrick. The senior partner of that firm, Dr. Hcinrich 
Albert, was another of von Papen's friends. Albert had come to the 
United States in 1914, supposedly as a German commercial attache, 
and had raised something over thirty million dollars from American 
sources friendly to Germany to finance the espionage and s2hotagc 
activities which Franz von Papen directed in the United States 
during World War L With these funds, for example, the heavy 
chemical industry of the United States was crippled by the simple 
expedient of buying up all of the chemical stoneware produced 
in the United States. Stoneware was at that time the only type of 
equipment that could resist the corrosive action of the important 
heavy chemicals. Many American chemical plants were eventually 


shut down for lack of this stoneware. For the duration of World War 
Ij it kept piling up in warehouses leased by von Papen s cloaks. 

After World War I the law firm of Albert & Westrick was very 
busy with the program of American loans to build up Germany, 
Beginning in October 1924, when American investors advanced 
$110,000,000 of the original $200,000,000 international loan under 
the Dawes Plan, a stream of private loans to German governmental 
organizations, public utilities, banks and industries had poured in 
American money from private sources at the average rate of over 
a quarter of a billion dollars a year, until the American crash of 1929* 
Two American investment banking organizations handled the bulk 
of this private lending system for the rebuilding of Germany. They 
were Dillon, Read & Company of New York, and the J. Henry 
Schroder Banking Corporation. Legal work on the Schroder Bank 
loans was always handled in Germany by the firm of Albert & 
Westrick, and in the United States by Sullivan & Cromwell, the firm 
headed by John Foster Dulles. 

But to return to Gerhardt Westrick: in April X940, this fraternity 
brother had come to the United States ostensibly as a commercial 
counselor to the German Embassy, but actually on a direct assign- 
ment as personal representative of the Nazi Foreign Minister, von 
Ribbentrop. His mission was to attempt to convince American busi- 
ness leaders that they would gain by a Hitler victory, and to persuade 
them to help in keeping the United States out of the war. Dr. 
Westrick rented a house in Westchester County, New York, where 
his visitors included many nationally prominent executives of 
certain American oil and other industrial corporations. 

After it began to appear that Dr. Wcstrick's efforts had gone 
beyond the normal activities of a diplomatic representative, the 
Department of Justice required him to register as a German propa- 
ganda agent. Then the New Yor\ Herald Tribune and other papers 
assigned reporters and photographers to dog his trail and highlight 
everything he did. On October 9, 1940, he sailed for Japan. The 
American press congratulated itself on having made Westrick 's 
propaganda mission an ignominious failure. But as we looked into 
the transactions of Baron von Schroder and Dr. Westrick, we won- 


There were many questions we would have Hked to ask Baron von 
Schroder had he been home that April evening in 1945, but it was 
not until two months later that another of our men, Robert West, 
formerly of the White House detail of the Secret Service, tracked 
him down. Von Schroder was found in a detention camp for SS 
prisoners in France, masquerading in the battle fatigue dress of an 

55 corporal. 

Some of the records began to make sense, even without Baron von 
Schroder. Several bundles were the detailed ledgers of deposits into 
the special account labeled "Sonderkonto S.'* What struck us first 
was the all-star cast which made up this list of depositors. Of the 
forty or fifty names which turned up regularly in the pages, running 
all the way back to 1933, wc recognized about twenty immediately 
as well-known directors of the biggest German industrial firms in 
the fields of coal, iron and steel, machinery, chemicals, electrical 
equipment, transport, and electric power. In the galaxy of corpora- 
tions deahng with the Stein Bank, this list of individuals might not 
have seemed unusual except for two things: the regularity of the 
deposits in this joint account, and the close relation between decreases 
in the account and the Himmier letters asking for money. 

This one account, we learned by putting Uttle pieces of evidence 
together, covered only the running expenses of Himmler's SS, and 
perhaps some of the Gestapo; but if one special account had the 
letter "S/' it was a fair guess that somewhere, in the Stein Bank or 
elsewhere, there could be other special accounts *'A" or "B'* or "Y" or 
*'Z." The arrangement was simplicity itself* At a wink or a nod 
from someone — in this case we later found it was Wilhelm Kep- 
plcr of the Nazis' "Hermann Goring'' steel combine — the con- 
tributors would quietly make deposits into the special account at the 
bank. When the leader of the party formation — in this case Himnv 
ler — wanted money, he asked for it; and it was drawn against the 
same account* No muss, no fuss, no "Nazi** connections for the 

The next day, after the discovery of von Schroder's records, we 
divided our party. Besides Bursler, Sacks, and myself, there were 
Rene Manes, a naval lieutenant from SHAEF and an expert ac- 
countant; Bernard Glaser from the Treasury; John Walker, special- 


ist in German documents; and Richard Thompson, FBI liaison with 

Twelfth Army Group. Rene Manes and I left the rest of the party at 
von Schroder's villa and went down to Cologne to look for records 
of the steel interests belonging to Otto Wolff, a leading contributor 
to the "S'* account. Wolff himself had died in 1940 but the files of his 
firm were intact in three subbasements of a building not far from the 
wreckage of the Stein Bank. We put a guard on the records, 
arranged billeting for some of the party, and returned to Bonn. 
AH told we collected several tons of documents from Bonn and 
Cologne, most of which we sent back to Versailles with Man&s. 
Bursler, Sacks and I packed ourselves and nearly a ton of records 
into an open weapons carrier and banged along eastward to Frank- 
furt am Main. 

We hoped to find some of the living contributors to "Sonderkonto 
S" and dig further into the reasons why they considered it 'good 
business** to make these donations. In particular, I wanted to inter- 
view Baron von Schnitzler again. In his villa near Frankfurt two 
weeks before von Schnitzler had looked every inch a baron, from 
his black homburg, velvet collar, and gray spats, to the young and 
beautiful baroness on his arm. One would never have guessed that 
von Schnitzler was a criminal, one of the financial mainstays of the 
Nazi regime, and a mastermind of the LG. Farben foreign organiza- 
tion. When Frankfurt fell on the twenty-seventh and twenty-eighth 
of March, 1945, von Schnitzler was living, comfortable and un- 
perturbed, in his villa not many miles outside the city. His manner 
was that of the master of the house greeting the fire department. 
He was affable, urbane, but kept the firemen in their place. He 
offered brandy, and then withdrew it in deference to the non- 
fraternization order. His manner managed to imply that the 
non fraternization idea was an immature gesture typical of a 
certain kind of American. 

The war had not touched Baron von Schnitzler and, to hear him 
tell it, he had not touched the war. It was a case of live and let 
live. He asked us how soon he would be able to get in touch with 
his friends in Imperial Chemical Industries, Ltd., in England, and 
Du Pont in the United States. He said he was relieved that the 
recent "unpleasantness" was over. It was very important that he 


and his friends should pick up where they had left off and build for 

the future. Now that we had the records of his deposits into "Sender- 
konto S/* I wanted to get him back for a longer talk. 

When we had him brought to our field office in the Reichsbank 
building at Frankfurt for questioning, Baron von Schnitzler denied 
having had anything to do with Hitler or the Nazi Party. They were 
beneath him. He was a businessman and his factories had produced 
things which the Nazis needed; but they had come to him. Certainly 
he had never contributed in any way to their activities. He had 
deliberately avoided knowing anything at all about "govern- 
ment" business done by the firm. That was handled by other 

Baron von Schnitzler was thoroughly at ease throughout the 
several hours of our questioning. We warned him repeatedly of 
the stiff penalties for making false statements. But he talked on 
persuasively and smoothly, in perfect English. The records of 
"Sonderkonto S'* seemed miles and ages away as the Baron talked. 
Perhaps he did not know the records had been found and he was 
bluffing or lying. But actually in his own mind he need not have 
seen any inconsistency between his pose as an "unpoliticar* business- 
man who did not want to know about "government" business — 
poison gas, slave labor, Auschwitz and all that — and his record of 
steady contributions of at least forty thousand dollars a year to 
"Sonderkonto S." In his own way he was speaking of a world in 
which one makes the necessary contributions to ''causes" without 
feeling personally involved at all. 

That is not to say that the Baron was unaware of how his be- 
havior might be interpreted by those of us who did not belong to his 
fraternity. All through our conversations, both at his villa and in the 
Reichsbank building, the interrogators had been anonymous. The 
German intelligence service had had most American government 
officials bracketed in preparation for the occupation; but they needed 
to know who was coming in order to know what records to hide 
first. We never addressed one another by name or gave any hint of 
the reason for our interest in the Baron's business. To put him at 
ease I pretended at the first interview that I had never heard of the 
I,G. Farben firm nor of von Schnitzler. At the outset I asked him 


v/hat he did for a living. When he said he was a director of I.G. 
Farbenindustrie, I asked him what that was. He said it was a com- 
pany* What did the company do, make shoes, ships, textiles.? It was 
a chemical firm, he stated; a very large chemical firm. 

As the questions rolled along, all of a police-blotter variety im- 
plying a profound ignorance on our part, von Schnitzler sat back 
with a bland and contented look, arching his eyebrows and leveling 
a hawklike gaze along his Roman nose as though it were the barrel 
of a fowling piece. He lied like a trooper through it alk 

Toward the end of the second interview, however, von Schnitzler 
tried to find out who we were; and one of our men made the mis- 
take of calling me by name. For just one instant the Baron*s eyes 
registered a quick appraisal. He then carefully and deliberately 
recrossed his legs, shifted his gloves from one hand to the other, and 
asked if I was satisfied that all his replies had been truthful and 
complete. When I told him merely that if we wanted anything 
further he would hear from us, he persisted for several minutes 
asking in various ways if wc did not want him to ^'clarify" any of his 
answers. Later we found in his files copies of published testimony 
on I.G. Farben that several of us had presented to a Senate com- 
mittee in 1944, with our names underlined in green ink. 

Von Schnitzler did not appear particularly surprised when at the 
end of the interview he was taken to jail, charged with making 
false statements to military government officers, and later held for 
trial as an industrial war criminal. He was among those convicted 
in 1948 and sentenced to twelve years for profiting from the war 
and for being responsible for abuse of foreign workers. He and all 
the other industrialists tried with him were acquitted, hov/ever, 
of complicity in starting the war; because the court held that they 
had not had advance knowledge of Hitler*s specific plans for 
military aggression. These men had started a chain of events whose 
inevitable outcome was war. But in the eyes of the law, as the Ameri- 
can judges construed it, only those who had forged the last link 
could be guilty of a crime. 

The old Frankfurt had been almost leveled to the ground, while 
the I.G. Farben office building, one of the largest in the world, stood 
untouched. The handsome cathedral where kings of the Holy 


Roman Empire had been crowned, the little inns with their carvings 
and paintings, and the hundreds of other weathered and mellowed 
reminders of Germany's old life in the times before Bismarck, 
HohenzoUern, and Hider, all had suffered the tortures of the 
damned. But the Nazi edifice of the New Order, literally a giant 
filing cabinet loaded with hundreds of tons o£ papers and records 
of the Farben empire, remained whole. 

In the synthetic Nazi economy, Farben's mountains of paper were 
fully as important as the mountains of coal in the Ruhr. The Ger- 
man businessmen who had handled Farben's gentlemanly agree- 
ments with the fraternity brothers in other countries were prolific 
writers of memoranda. They had kept voluminous diaries and notes 
of conferences. Patents and patent-licensing agreements, domestic 
and international, were the stuff their dreams were made on. 

The very volume of their paper work was almost our undoing. 
The main Farben building consisted of six large wings^ each seven 
stories high, arranged to form an arc of a circle and connected by 
five hyphens of the same height. This colossus of steel and buff- 
colored stone was bulging with everything from contracts with 
Du Pont and Imperial Chemical for the division of world markets 
down to the invoices of shipments of drugs or photographic film to 
a little wholesaler in Buenos Aires. In all the fighting for the city 
hardly a window had been cracked and not a filing cabinet disturbed. 
But as the city fell, into this refuge had swarmed over eleven thou- 
sand displaced persons and liberated slave laborers, looking for 
temporary shelter and warmth. Within two days the rooms, corri- 
dors and stair wells of the building had become snowbound in a 
blizzard of papers. Everything spilled from the files as desperate 
people took care of the needs of warmth, sanitation and revenge in 
one mad assault on the neatly ordered rows of cabinets. 

Advance members of our party had reached Frankfurt on March 
29, most of them answering a call from *Xucky Forward." General 
Patton's armored spearheads racing eastward towards Wurzburg 
had stumbled upon the greatest collection of SS loot, art treasures, 
and Nazi gold reserves ever uncovered in Germany. This mass of 
carefully indexed material, including everything from the famous 
collection of paintings of the Kaiser Wilhelm Museum to sacks 


of gold teeth and suitcases full of gems stripped from victims of the 

SS murder camps, had been hidden deep in a potash mine at 
Merkers, east of Frankfurt. Patton roared back to General Eisen- 
hower to send someone up to take responsibility for this hoard. 
Guarding it was tying up a whole regiment and knocking hell out 
of one of his divisions, he said. Colonel Bernard Bernstein, to 
whom we were attached in the Financial Branch, got the assignment 
and moved up to Frankfurt and Merkers with every member of 
the staff he could pull away from other duties. They started the 
Gold Rush of 1945, tracking down leads to odicr Nazi loot and 
having it shipped back for safekeeping to the commandeered Reichs- 
bank building in Frankfurt. 

This advance party began burning up the wires for reinforce- 
ments from our side when they saw what was happening to the I.G. 
Farben records at Frankfurt. Two of the Treasury men got a load 
of German PW*s to sweep all of the papers into the west wing of 
the building where they could at least be sealed off. But the SHAEF 
Headquarters Commandant arrived in a few days to requisition die 
building as a future forward headquarters for General Eisenhower, 
and ordered the building cleared of all this * refuse." Army trucks 
began backing up to the building, hauling off truckloads of the 
papers and burning them. Only the most vigorous argument could 
produce so much as a temporary truce while we tried to round up 
enough men to do something with the three hundred to four hun- 
dred tons of papers stacked in the west wing. 

The token force from Treasury and our one man from Justice 
soon got support from a technical team attached to the "T" forces, 
headed by a British officer, Colonel Gordon. This team was in hot 
pursuit of Farben *s secret poison-gas experiments which were sup- 
posed to have produced not only the superpoison, Tabun, a droplet 
of which meant slow death, but a still more powerful poison, Sarin, 
a smaller droplet of which meant instant death. They found that 
several hundred carloads of both had been produced, put up in 
containers disguised as dyestuff intermediates and other harmless 
chemicals, and shipped in railway cars billed to Wehrmacht ammu- 
nition dumps at points all over Germany. Apparently the only thing 
deterring the Wehrmacht from releasing the gases was the fact that 



no gas mask or decontaminating agent capable of protecting them 
from the stuff had yet been deveioped. Some of the Farben chemists 
were still searching frantically for the antidotes when Colonel 
Gordon*s men picked them up. Intentional or accidental opening of 
the disguised containers would cause wholesale havoc; and the keys 
to their identification were somewhere in the Farben production 
records. Colonel Gordon's men worked fast and talked sharply; but 
even so, they were just barely equal to the task of keeping the 
Headquarters Commandant's men from "cleaning up" the place to 
meet its destiny as the most impressive-looking military head- 
quarters in Europe. 

On the evening o£ April 28, when I arrived with Bursler and 
Sacks, we found enough manpower assembled at Frankfurt to start 
looking for the why that lay behind the collaboration of German 
industrialists with the Nazis — the prior question, one step re- 
moved from the poison gas and the slave labor and the murder 
camps that had been the end product of the collaboration. 

But first we had to move the records to a building next door to the 
Reichsbank. We 'did it in three days with two tractor-drawn vans, 
two hundred PW*s and three hundred LG. Farben employees. A 
crew of two dozen or more Farben department heads and chief 
clerks was kept busy identifying bundles of papers so that they could 
be routed to different rooms and reassembled* To prevent some of 
the inevitable sabotage and concealment of documents, a human 
chain of Farben employees was stationed on the stairways to pass 
bundles hand over hand while the PVV's were kept moving with 
individual bundles. A tremendous speed-up, with a great many 
shouts of ''schnell, schnelir was the oniy other precaution we could 

One of the minor Farben officials tried to do his bosses a service by 
concealing the diary of one of their best foreign negotiators, Dr. 
Frank-Fahle. The little official had a job on his hands. The diary 
consisted of about forty-two volumes of closely written notes, 
arranged in loose-leaf notebooks. He took advantage of the con- 
fusion of files, papers, displaced persons, war prisoners, and Farben 
employees to spirit away the separate volumes of the diary and put 
them one by one under a heap of rubble and wastepaper. Alex Sacks 



watched him for a few days until satisfied that the entire set had 
been assembled, and then picked them up all at once. 

The same investigative technique, if it could be called that, led 
to the discovery of the ''Neuordnung'' or New Order documents. 
These were plans prepared during the war by the LG. Farben 
management to explain to the German Economic Ministry their 
over-all recommendations for organization of the chemical in- 
dustries in occupied territories wherever German arms should 
triumph. Since they had thought of everything and had written 
most of it down, we could gradually assemble a fairly compre- 
hensive picture of the use that the Germans had been able to make 
of things like patents. The patent laws of other countries had pro- 
vided a solid footing for what otherwise might have been tentative 
gentlemen's agreements. 

We recalled that when the Antitrust Division and several Senate 
committees had begun their wartime investigations of the American 
patent system, there was a lot of folklore about the international 
arrangements among the fraternity brothers. Economists were say- 
ing that it would have been impossible for an international arrange- 
ment to keep up prices or divide markets beyond the point where 
someone found it more profitable to break away from the agreement. 
They said that as soon as some one member of the group decided to 
break away there was nothing to hold him. He would, as an 
economic man, follow the paths to greatest profits regardless of any 
gentlemen's agreements to the contrary. 

The German gentlemen said, ''Ach, so?'' Investigations showed 
how far they could go in putting teeth into their agreements. An 
agreement is more than a gentlemen's agreement if the violator can 
be tangled up in expensive litigation, especially if the courts in his 
own country can be used to issue injunctions and compel perform- 
ance. Between wars the art of founding international arrangements 
on enforceable legal contracts had developed to a fine point of per- 
fection. The patent laws of the respective countries furnished only 
one out of many possible means; but patent agreements had one 
peculiar advantage. Most patent laws are so complicated that litiga- 
tion is long and expensive. An international private treaty that 
draws its strength from legally enforceable patent obligations is 



very well founded indeed. The tougher the litigation in the event of 
a breach, the less likely that any gentleman will try to back out on 
his obligation. 

The terms of the Versailles Treaty had limited the right of Ger- 
jnan ijidustry to certain kinds of tariff protection and to the other 
kinds of subsidies and exchange controls that may be used to bolster 
arrangements for the division of markets. We found that from 
the time LG. Farbenindustrie A.G. was formed in 1925 the manage- 
ment had proceeded along definite lines to develop fairly simple 
patent schemes for protecting and expanding their position in 
markets abroad. 

Germany was already far ahead of most other countries in the 
development of chemical synthetic processes for making various 
raw rxiateriais which were plentiful as natural products in interna- 
tional markets. Nitrates, for example, had always been a near 
monopoly for the Chileans; but Germany's war effort in 1914 had 
been made possible by the development of the Haber-Bosch syn- 
thetic nitrate process which provided an unlimited supply of ex- 
plosives. Many developments in dyestuffs, pharmaceuticals and 
other products had likewise helped to make up for Germany*s 
natural deficiencies in raw materials. Coal and potash and forest 
products are about all that Germany can claim in the way of natural 
resources. This gave considerable incentive for the development 
of synthetics. 

The practice of I.G. Farben was to capture the basic psttents in 
each field of synthetic chemistry. They would file applications for 
patents not only in Germany but also in most of the civilized 
countries of the woM. Our own patent laws were full of loopholes 
that helped a great deal. For one thing, despite the legal require- 
ment that a patent specification must be so detailed as to enable 
a man ^'skilled in the art'* to practice the invention, a vague descrip- 
tion of the method of producing a chemical compound is often 
enough to obtain a patent. During World War 1 when the Ameri- 
can Alien Property Custodian seized the ov/nership of German 
patents, he took over the patent on Salvarsan, Dr* Ehrlich*s "magic 
bullet" for the treatment of syphilis. When American technicians 
went: to work to follow the recipe set out in the patent specification, 


the material turned out to be violently poisonous. The recipe had 
carefully avoided mentioning how to eliminate the poisonous arsenic 
compounds that occurred in the preparation. 

Further, these loopholes permitted an enterprising firm to file 
its application for a patent long before the actual "bugs" had been 
worked out of the production process. The Germans, between the 
two wars, made an especially energetic drive to exploit their initial 
advantage in the field of synthetic chemistry in this way. In many 
cases they blanketed whole new fields of industrial technology by se- 
curing basic patents covering all known or suspected processes for 
synthesizing important materials. In some cases they themselves had 
not discovered how to make these materials, but that mattered very 
little. If someone else did discover the "know-how," he would find 
himself blocked by the patents already issued to some German firm 
or individual on the basis of a general description of the process. 
Confronted with this earher patent, the new inventor had a simple 
choice before him : spend anywhere up to ten years and thousands of 
dollars in arguing a patent interference through the Patent Office 
and the courts; or make a deal. Most of them chose to make a deal. 
But each deal included specific and legally enforceable recognition 
by contract on the part of the newcomer that the German patent 
was valid and not open to question. Then he would get a promise 
from the Germans that as they worked with the new process in their 
own factories and laboratories, they in turn would make available 
to him the technical know-how that they might discover. TJiis made 
it a mutual enterprise beneficial to both, saved expense of litigation, 
and besides the two could then join forces against any other in- 
ventors who might still be outside the arrangcmtnt. 

In practice, this meant that if LG. Farben caught Du Pont on the 
first go-round with the Farben patents in the United States and made 
a deal with Du Pont, from then on it was I.G. Farben and Du 
Pont against, shall we say, Monsanto. And as more outsiders fell in 
with the scheme the team of solidly organized patentees grew and 
the chances of the remaining outsiders were less and less. 

Now that we had the files and many of the directors of Farben we 
could find out how some of these feats had been accomplished, 
provided we could pick the right haystack and then find the needle. 


When a mystery is complicated, the French tell us to look for a 

woman; but in sleuthing among corporations, we found it was much 
better to look for the chief accountant. We found the chief ac- 
countant of LG. Farben, still alive but in slightly damaged condi- 
tion, in Frankfurt. Paul Dencker had probably been scowling, 
rat-faced, and resentful for most of his life; but besides this, he had 
been crippled and scarred in the bombing of Frankfurt. By the time 
we got to him, he was what you niiglit call downright unfriendly. 

Dencker, when he was ready to talk, proved to have an accurate 
memory for names, numbers, and places that few people could equal 
and probably none could surpass, Ke remembered correctly the 
names and most recent addresses of every important director, officer, 
department chief, and plant manager of the Farben combine, the 
financial accounting details of the firm's books, and — when he 
could be pinned down — the hiding place of the subsidiary files and 
accounts of all the fifty-three main departments that m.ade up the 
Farben organization* His speech was likely to be impolite. Unless 
corrected, he would refer to all occupying forces as *''auslandische 
Vandalen" — foreign vandals. But he knew accurately most things 
the top directors would have liked to forget. 

Geheimrat Hermann Schmitz, who had succeeded old Carl 
Bosch as top man of the whole combine, never did open up. Max 
Ilgner, the financial chief, side-stepped questions so easily that it 
was usually simpler to ask someone else or to draw conclusions from 
the records. August von Kniericm, chief legal counsel, always hope- 
ful of help from abroad, was careful not to admit that he knew any- 
thing* Karl Krauch, the poison-gas man, knew that anything he 
said might be used against him. Baron von Schnitzler, in charge of 
sales of dycstuffs and chemicals, and very active in foreign geopoliti- 
cal matters, finally tried to spill a great flow of generalities and ad- 
missions. And so it went throughout the list of the top management. 
It was Dencker who supplied the key, because on any subject he 
knew what man in the whole organization would have the answer 
and he knew where that man could be found. 

The world-wide activities of the Farben organization as part of 
the German war effort have been pubHcized so much that they have 
created a picture of an octopus-like monster. Actually that is not the 


point. Most of the individual acts which made up the spectacular 
geopolitical activities of I.G. Farben looked like ordinary business 
transactions. Partly their success was due to American acceptance 
of the "business is business*' philosophy. Largely relying on this easy 
tolerance of social irresponsibility, the Farben organization put across 
its efitire program, capturing markets, bottling up inventions, dig- 
ging out economic and industrial secrets, and financing propaganda 
pracdcally without fear of reprisals or countermeasures. 

One illustration is the successful concealment of Farben's foreign 
activities. From the very first, the LG. Farben management de- 
veloped a program of what they called Tarnitng, meaning conceal- 
m-ent. The three-billion dollar corporation, LG. Farbenindustrie 
A.G., had started as an hitcressen Gemeinschaft, or community of 
interests — that is, a cartel — among the six largest German pro- 
ducers of dyestuffs: an Interes^en Gemeinschajt of the Farben in- 
dustry. The individual companies that went together in 1925 to 
make up the combine had tem.porarily lost many of their foreign 
properties through alien property seizures during World War L 
That fact alone might have been reason enough for them to protect 
their common interest by finding ways to make their foreign 
properties legally immune from future wartime seizures. 

Even if there had been no contemplation of future war> however, 
there were business reasons why a German company of the 1920's 
would develop a Tarnung program. In those years there was anti- 
German feeUng in the important w^orld markets. It was advisable 
for German companies to assume the character of domestic organi- 
zations in each country. This could have been done merely by 
adopting an American name for sales operations in the United States, 
without hiding the legal ownership. But in many countries a foreign- 
owned corporation can avoid extra ta^ces if the ownership appears 
to be domestic from a legal, as well as from a public relations, stand- 

Also, many countries have adopted foreign currency regulations 
which subject a foreign corporation to control or supervision thst 
might not be applied'to a domesdc company. Under such regula- 
tions, the books of a branch office or subsidiary corporation might 
have to show details of the profits and losses of the parent corpora- 



tion in Germany. In that case the governments having jurisdiction 
over the foreign branches would be able, by pooHng their informa- 
tion, to see how well or badly the parent corporation was doing. 
German corporations did not want to expose their points of financial 
strength or weakness at a time when they were embarking on an 
international struggle for markets* 

In the United States there were still more reasons for hiding the 
ownership of German companies. Most of the new German firms, 
especially in the heavy and synthetic industries, depended upon 
government subsidies to make their operations financially possible. 
The United States had passed, as part of its tariff laws, the "anti- 
dumping'* act of 19^1. This act provided that if any foreign govern- 
ment subsidized exports to the United States, so that the foreign 
producers were in eflect olTering their goods below actual cost, a 
special "countervailing duty" would be levied against the goods. The 
United States Customs would collect an added amount equal to 
the foreign subsidy. Camouflage of the American subsidiary would 
allow the German company to appear to sell goods to an independent 
American company at the full market price. Then the German 
government could take care of low profits by paying subsidies be- 
hind the scenes, overseas, where the eyes of the United States 
Treasury could not penetrate. Another reason for concealment of 
properties in the United States was the fact that many German com- 
panies were floating large loans abroad to finance plant expansions 
in Germany. In the event of default, the German companies did 
not want to appear as owners of valuable assets in the United States, 
where the disappointed bondholders could reach them by court 

The Tarnung program developed by I.G. Farben proved to be re- 
markably weatherproof. It was Dcncker who gave us the first 
indication that documents describing the concealment program had 
been kept by the management. But despite his recollection of the 
shape and size of the black leather folder containing the file of 
Tarnungs Fragen, we never caught up with it. The combined in- 
vestigative powers of other agencies of the United States government 
were still unable, even four years after the end of World War II, 
to prove the German ownership of I.G. Farben*s biggest enterprise 


in the western hemisphere, the multimillion-dollar General Aniline 
& Film Corporation of Binghamton, New York. This company, 
originally named the American I.G. Chemical Corporation, de- 
veloped a large business in dyestuffs, "Agfa*' photographic equip- 
ment and supplies, and a host of other chemical products. In this 
case, I.G. Farben made no attempt to conceal the foreign ownership 
of General Aniline, but concentrated on establishing legally that 
the ownership and control was Swiss rather than German. 

The laws of ''neutral'* Switzerland were a great help in many such 
arrangements. The shares of stock in most German and Swiss 
companies are in "bearer'* form. Even a look at the certificates does 
not help to identify the owner. Only the books of the bank which 
holds them for the owner can show for whom the banker is acting, 
and from whom he receives instructions on how to vote the shares 
at stockholders* meetings. But Switzerland has a "bank secrecy'* 
law. It is a criminal offense for any Swiss banker to disclose the 
actual ownership of property entrusted to his management. As we 
found in concrete terms how effectively this arrangement had pro- 
tected the German flank, it began to seem that Switzerland's suc- 
cessful neutrality throughout two world wars may have hinged 
on things like this law far more than on the ferocity of the Swiss 
guards or the tenacity of Switzerland's democracy. 

From the American side, the picture was not so rosy. We found 
that throughout the war the American diplomatic position in 
Switzerland had been to a great extent represented by American 
bankers. Some of these seemed to have had their own reasons for 
approving the pattern of private international co-operation made 
possible by Swiss law. 

The cluster of American bankers who spent the war years in 
Switzerland incIuded^, perhaps by coincidence, American lawyers 
and bankers who could be expected to know the most about the true 
relations between I.G. Farben and the General Aniline & Film 
Corporation. The J. Henry Schroder Banking Corporation and its 
law firm, Sullivan & Cromwell, had handled the banking and legal 
business of the General Aniline firm from the time it was first set 
up as the American I.G. Chemical Corporation. Throughout the 
war, Allen W. Dulles, a partner in Sullivan & Cromwell and until 



1944 a director of the Schroder bank in Nev/ York, headed the 

European Mission of the Office o£ Strategic Services in Switzerland; 
and V. Lada-Mocarski, vice president of the Schroder bank, was a 
United States consul in Switzerland. 

Even lifter its seizure by the Alien Property Custodian^ General 
Aniline was administered on behalf of the Custodian by officials 
of American companies which, under the code of the banking 
fraternity, were part of the Schroder group. Some might hold that 
these men were a good choice for these jobs for the very reason 
that they had good banking connections. But the Schroder-picked 
ofriciais who were in charge of the American company and the 
Schroder oificiais who were representing the United States in 
Switzerland never managed to get the Swiss government to produce 
information which Swiss bankers had at their finger tips. The fog 
around the ownership of General Aniline has never been dissipated. 

While the United States government, v>^ith this kind of help 
from private businessmen, was unable to penetrate the camouflage 
that LG, Farbcn had set up^ Vv^e found that the Farben organiza- 
tion, working hand in glove with the German government, had 
prepared global economic plans for the w^orid's chemical industry. 
These plans for a new order would have carried further the world- 
wide network of agreements which the I.G. Farben management 
had made in all the important industrial and marketing areas before 
the war. 

In 1940, after the fall of France, the I.G. Farben management put 
these New Order plans in writing and presented them to the Ger- 
man Economic Ministry for official approval. These plans were 
divided roughly into two parts. 

The first would apply especially during the phase of military 
operations in Europe, while England was being subdued. It was 
expected that after Europe was conquered there might be a period in 
which a Germanized Europe would have to "improve its strength 
in relation to the countries outside of the European sphere," as von 
Schnitzler put it. "This meant, of course, the United States," he 
added. The purpose was to maintain control over the chemical 
industry of Europe so that no new plants would be set up outside 
Germany, and so that the production in existing factories could be 


supervised. Special emphasis was placed on preventing patent licenses 
or technological information from being given to the chemical in- 
dustry outside the area of German control. This provision was 
aimed particularly at the chemical industries of the United States^ 
which had been heavy "importers" of German technical information. 

One incident, in particular, evidently caused a great stir in the 
Farben organization after the New Order plan had been in opera- 
tion a little over a year. In January 1942 came the Department of 
Justice case against the Standard Oil Company of New Jersey, 
charging conspiracies with I.G. Farben to violate the antitrust laws. 
The company and its officers paid fines and accepted a court decree 
enjoining them from continuing the marketing and patent arrange- 
ments in the future. The Standard Oil Company then bought full- 
page advertising space in newspapers ail over the United States 
to publicize Standard*s claim that the United States had benefited 
from the F^irben deals because Standard had received much more 
technical information from I.G. Farben than they had given I.G. 
in return. 

It was, of course, true that under the agreements much of the 
basic research was to be conducted in Germany. The American 
partner, therefore, had to depend on Germany for more technical 
information than they would themselves be able to give in return. 
When the German Economic Ministry read copies of the Standard 
Oil advertisem.ents, they demanded a full report from I.G. Farben 
to answer the charge that Standard had had the better of the ex- 
change. In the files at Frankfurt we turned up copies of the I.G. 
Farben report to the Economic Ministry. The Farben managers 
were not allowed to rely on the sweeping generalizations of a 
newspaper advertisement. Their scientists had to produce docu- 
mented answers to satisfy the Economic Ministry and the General 
Staff. The contention of the Farben report was that the German 
firm had received from Standard Oil several important new links 
in the jigsaw puzzle of their own technology, whereas the ap- 
parently vast quantities of information they had passed over to the 
Americans had left large gaps to be filled by new research and de- 
velopment before they could be put to any use. 

The second phase of the I.G. Farben New Order plans contained 


a long-run program for assuring permanent German control of the 
chemical industries in foreign countries^ Where necessary, they 
said, this could take the form of stock interests in the foreign com- 
panies. But experience in France changed these plans. The Germans 
found it unnecessary to acquire ownership. With some pressure 
based on business considerations, they found that a community of 
interests could be formed between French owners and Germans, 
This had the advantage of assuring firm co-operation instead of 
recalcitrance. Even more important, in the event of German military 
setbacks, such arrangements in all countries would provide a corps 
of interested business associates in the "liberated'* territories who 
would insist upon continuing their relations in some form even if 
Germany were defeated. 

The LG. Farben New Order plan was initiated by the Farben 
management, acting on its own, to show the German High Com- 
mand how the corporate expansion of LG, Farben as a business 
proposition could be geared in with the interests of the German 
government In establishing German power all over the world. This 
close identity between the business interests of the company and 
the national interests of Germany was not accidental. It was the 
result of over twenty years of close working between the manage- 
ment of German industry and the German government. Under this 
working arrangement, the laws of Germany had been gradually 
modified to give more and more assistance to the growth of organi- 
zations like LG. Farben. Special tax concessions favoring the growth 
of combines, modifications of the corporation law to give manage- 
ment a free hand, government subsidies for special projects, all 
strengthened the position of the combines in a geometric progres- 
sion as their size increased. In rcturriy the greater size and weight 
of the combines made them a more and more powerful instrument 
of German policy abroad. 

None of this development would have been possible without loans 
from the Allied nations. These loans for reconstruction became 
a vehicle for arrangements that did more to promote World War 11 
than to establish peace after World War L The amount of the loans 
to German private industrial interests was not large by present 
standards. In the years from 1926 to 1930 they were roughly com- 


parable to the $275,000,000 invested by the United States Govern- 
ment from 1933 to 1937 in the Federal Home Loan Bank system, 
which enabled some fourteen hundred building and loan associa- 
tions to stimulate home building and repair during the depression 
years. But in Germany, the reconstruction loans to private business 
took a different course. 

Of the outstanding industrial loans, over a hundred miUion 
dollars went to United Steel and its components; over sixty million 
dollars to the two electrical equipment combines, Siemens & Halske 
and A.E.G.; twenty-five million dollars to the Hugo Stinnes in- 
terests; and slightly lesser amounts to the United Rayon combine, 
VGF^ and to the major iron, steel and coal companies, including 
Krupp and Good Hope. 

The loans to banks and utilities followed a similar course. About 
half of the bank loans went to the Deutsche Bank and Commerz 
Bank. A third of the utilities loans went to the RWE electrical 
combine, the Rhenish-Westphalian Electric Company, in which 
Baron Kurt von Schroder served as a leading director, along with 
Albert Vogler of the Stinnes and Siemens concerns, Hermann J. Abs 
of the Deutsche Bank, and Carl Goetz of the Dresdner Bank. This 
public utility combine supplied two thirds of all the electric power 
consumed in highly industrialized west and southwest Germany. 
The RWE controlled a power grid that stretched from the borders 
of Holland to the Swiss frontier. It held participations in over 
one hundred and forty enterprises including power-generating and 
tramway companies, hard and brown coal mines, firms engaged in 
designing and constructing power plants, river shipping com- 
panies, and the Braunkohle-Benzin synthetic fuel company. This 
latter establishment, one of the forerunners of the Four-Year Plan, 
was a joint enterprise of the Belgian Solvay & Cie. of Brussels, 
along with RWE and the steel firm of Friedrich Flick, LG. Farben, 
the chemical trust, and the German government holding company 
known as VIAG or United Industrial Enterprises. VIAG exercised 
the over-all control of the synthetic fuel experiments under the 
supervision of Hans Kehrl and Gustav Krupp. Kehrl was an 
SS Brigade Leader and protege of Himmler who controlled a large 
group of synthetic textile factories known as the Ring. This part 


of the German autarchy program was being developed with the 
help of foreign loans long before the Nazis came to power. 

In 1934, Wilhelm Keppler, in his capacity as Hitler s economic 
adviser, asked Hitler to establish a Special Agency for the Develop- 
ment of German Natural and Synthetic Raw Materials, commonly 
known as the *'Biiro Keppler," to prepare programs for production 
of synthetic textiles, synthetic rubber, synthetic fuel oil, gasoline and 
lubricants, and synthetic edible fats and proteins. His chief col- 
laborators on this project were Hans Kehrl, Paul Koerner, and 
Paul Pleiger of the Dresdncr Bank. All four were part of the Ad- 
visory Committee on Questions of Raw Material, headed by Goring 
and Schacht, and all four in the Biiro Keppler laid the ground- 
work for the over-all self-sufficiency or "autarchy" plan to prepare 
Germany for the coming war. That was the Four-Year Plan created 
in 1936. 

Now that we had their own statement of some of the things they 
had intended to do with their power, we still had to find out how 
far the men of the "Keppler Circle" had been able to go in carrying 
out their intentions — especially where they needed the help o£ 
their brothers overseas. 


Seek and Find 

THE gold rush was going well. Armored convoys carrying Reichs- 
bank gold and recovered loot were streaming back from points as 
far as the Czechoslovak border. With something tangible like 
looted gold to take in hand, the combat commanders were doing a 
job that would make the Brinks Express Company turn green. A 
trunkful of bullion would arrive, not in an armored car with some 
armed men, but escorted by half-tracks with machine guns and one 
or two light tanks with artillery. One Ninth Army convoy with 
seventy million dollars in gold from the Reichsbank branch at 
Magdeburg came in with air cover buzzing overhead. The half- 
billion dollars or so of valuables accumulating in the vault down- 
stairs was secure from burglars. The entire block around the Reichs- 
bank v^as behind barbed wire and sandbagged machine-gun nests. 
There were antiaircraft emplacements on the roof and a Sherman 
tank and crew sitting in front of our door. 

A haltbillion dollars in treasure was something the army could 
handle. The pattern for dealing with such things was as old as 
Hannibal. The records we had just rescued from the headquarters 
commandant's bonfire were something new. In them might be a 
clue to the origins of a war costing a hundred billion a year; yet 
we were in trouble with the headquarters commandant again. At 
Kronberg in the Taunus, a few miles outside of Frankfurt, we had 
found the files of the metals trust, the Metallgesellschaft, in the 
Schloss Friedrichshof, seat of the royal family of Hesse. The head- 
quarters commandant wanted immediate possession of this castle at 
Kronberg so as to turn it into a club for SHAEF officers. If we did 
not remove the files immediately, they would be turned back to the 


MetallgescUschaft management or dumped somewhere outside the 

castle grounds. 

The MetallgescUschaft management would not have been able 
to house the records in their handsome office building next to the 
Opera House because Colonel Crisswall, the military governor of 
Frankfurt, had taken the building as headquarters for his military 
government. The company's employees inhabited a maze of gopher 
holes in the bombed-out block of buildings beyond. The company 
officials said that they would be delighted to get their records back 
and tuck them away safely in these catacombs. 

In the end the Metallgesellschaft management won out. We were 
already spread too thin to handle another big moving job while 
following the leads which the Farben investigation had already un- 
covered. As soon as the Farben people got any hint of what we 
might be looking for they tried to beat us to it. There seemed no 
end of ways for men like von Schnitzler to get messages out of the 
jail telling employees where to find important documents so that 
they could be hidden or destroyed. 

Our few weapons carriers and command cars were busy all day 
and into the night. Our men were finding cans of microfilm buried 
in gardens, hidden in barns, suitcases, clothes closets, within a fifty- 
mile radius of Frankfurt, For one hundred reichsmarks a month a 
Farben official had rented the refectory of a monastery near Wiirz- 
burg to store "personal effects" of bombed-out employees. The sixty- 
eight packing cases turned out to contain copies of over five thousand 
agreements between I.G. Farben and companies in France, Britain 
and the United States in the field of dyestuffs and heavy chemicals 

We needed manpower and wc needed understanding from the 
new crop of army officers who were moving up in the wake of 
battle. Up to this point co-operation had been startling in comparison 
with what I had been led to expect. Practically everyone I had run 
into, from GIs to generals, understood quickly what we were after 
and why it was important. 

A T/5 at one division headquarters was helping me to find the 
chief of staff. The soldier was from New York and had worked for 
the Hugo Stinnes firm. We had hardly started walking before he 


told me about the "cartel" he had worked for in New York and 
his opinion of cartels. There was the jeep driver from east Baltimore. 
Shortly after the armies reached the Rhine at Cologne, we were 
driving along the west bank within sight of the undamaged I.G. 
Farben plant at Leverkusen across the river. Without knowing 
anything about me or my business he began to give me a lecture 
about I.G. Farben and to point at the contrast between the bombed- 
out city of Cologne and the trio of untouched plants on the fringe: 
the Ford works and the United Rayon works on the west bank, and 
the Farben works on the east bank. There was Major General 
Malony, commanding the Ninety-fourth Infantry Division, who 
seemed to know as much about the problem as the Senate com- 
mittees that had investigated patents and cartels during the war. 
So it had been up and down the Une, until now. It was as though 
being in combat had produced a sharpened awareness that was sud- 
denly missing as the rear echelons moved up. 

Now it was like the leaden skies and snow flurries outside in 
early May, when one might have expected a warm sun. The 
housekeeping detachments of the headquarters command and the 
spit-and-pohsh military police of the Provost Marshal were moving 
in to "police up,'* unfurl the red tape, require mess passes, billeting 
passes, trip tickets — to challenge any unusual act and, if in 
doubt, to stop it. We had to have more help. As things settled 
down it seemed we would need two men to do what one had 
done before: one to do the work and one to go along and ex- 
plain why. 

At SHAEF headquarters in the Trianon Palace Hotel at Versailles 
we had a meeting of United States and British intelligence officers 
to consider making a list of key financiers and industrialists. The 
idea was to list about five hundred high-powered executives and 
managers of the biggest industrial and financial combines, and per- 
haps twenty-five hundred of their principal assistants and depart- 
ment chiefs. This list would be furnished to the counterintelligence 
units of all army divisions and regiments and to all CIC detach- 
ments and military government officers in the field, with instructions 
to notify us when any of the listed people turned up. The instruc- 
tions to accompany the list would not only provide a guide to CIC 


men in the field who were screening German civilians, but would 
give authority to our investigators to arrest and question high- 
ranking businessmen whom we ourselves tracked down. 

At the same time we saw that official ''cables" — army lingo for 
telegrams — went to all forward headquarters and army groups to 
announce that we would be establishing new centers of investiga- 
tion in the Ruhr and other localities, similar to the one we had 
already set up at Frankfurt. Copies of these cables served for some 
time as an open sesame to get where wc needed to go without too 
much argument or explanation. 

That does not mean we had no arguments. My British opposite 
number had something to say about what we could investigate in 
the Ruhr, which Vv^as being taken over as part of the British zone of 
occupation. Colonel John R. Kellam had been in charge of liquidat- 
ing British foreign investments during the war, before Lend-Lease, 
to get dollars to pay for Britain's lifeline. He was dour about the way 
Britain's economy had been bled white while wc in the United States 
debated through the Brst two years of war. He had little sympathy 
for what he called the American passion for trust busting"; but he 
did want to go after the assets that Germans had spirited abroad. 
There, at least, we were on common ground. His superior. Brig- 
adier M. J. Babington-Smith, chief of the Financial Branch of 
SHAEF, in private life a director of the Royal Bank of Scotland 
and partner in the "City's" Glyn, Mills & Company, was more 
squarely on all fours with my point of view, which was that set 
out in our written statements of policy from Washington: that we 
were interested in all devices by which power had become con- 
centrated into the hands of those responsible for the rise of the Nazi 
Party to power. Brigadier Babington-Smith's view was also shared 
pretty generally by S. P. Chambers, of the British Treasury, slated 
to become Colonel Kellam'5 superior as head of the Finance Division 
in the British Element when SHAEF dissolved. I had talked to Mr. 
Chambers in London several v/eeks before. 

It was not long before we faced a test of how far our investiga- 
tions could be carried v/ithout running into jurisdictional questions 
with the British element. One of my colleagues from the Depart- 
ment of Justice, Philip W. Amram, special assistant to the Attorney 


General, came in from the United States on a No. i priority, carry- 
ing special authorizations from the Secretary of War, He was to be 
given every assistance in digging up evidence for a case on which he 
was government counsel. The Standard Oil Company of New 
Jersey had filed a suit against the Alien Property Custodian to re- 
cover the ownership of some shares of stock and over two thousand 
basic patents. Standard claimed to have bouglit these rights in good 
faith, before the war, from LG. Farben; but the Custodian had 
seized them as property being held under a cloaking arrangement on 
behalf of Farben. Jersey promptly, and with a display of righteous 
indignation, filed suit in the United States District Court for the 
Southern District of New York to get it ail back. The patents were 
quite valuable, covering the basic technology and new developments 
in ail fields of mutual interest to Standard and Farben, except for 
the buna rubber patents, which had been the subject of a separate 
deal. The papers certainly appeared to be in order, and at the time 
Phil Amram came to Europe it looked as though Standard might 

Co-operation from the British side was immediate and whole- 
hearted. During the next two days after Amram's arrival, the in- 
vestigations took shape. The three Farben bigwigs, Schmirz, Ilgner, 
and von Knieriem, were in custody at the ''Chateau Transit Camp" 
near Versailles. Major Edmond Tilley of the British Intelligence, 
who had done the interrogations for the poison-gas team, flew back 
to work on the Farben trio with Amram. They had to get the story 
behind a meeting held at the Hague in September 1939, between 
Frank A. Howard of Standard Oil and Fritz Ringer, von Knieriem's 
^sistatnt. This was the meeting at which the transfer of stocks and 
patents from Farben to Standard had been arranged. 

Major Tilley and the Standard Oil investigation which he was 
making for Phil Amram dropped from sight for a few days while 
the Major's party searched in the field for records. But I heard 
from him again when I joined my group at Essen on May 23. 
Colonel Kellam handed me a note from Major Tilley, dated from 
Frankfurt the week before; "Dr. Biitefisch, chief of LG. Farben 
synthetic oil production, Leuna, has admitted that Dr. Hahn, his 
deputy, has hidden papers, including secret contracts and letters 


from and to Ringer at the following address: Bad Sachsa, Haus der 
Dynamic A.C' 

Bad Sachsa showed on the map as a point in the midst of the Harz 
Mountains, a few miles from the Devil's Pulpit on the Brocken, 
traditional site of the Witches' Sabbath. The Hitler Youth had 
revived the legend and held Walpurgisnacht celebrations annually 
on May first. We had reports that in the same area numbers of SS 
troops had declined to celebrate V-E Day and were playing come- 
and-get'it with units of the Fifth Armored Division. As we got 
together our party of ten to make the circuit of the Harz, looking 
for records of Krupp, Mannesmann, the Stahlwcrks Vcrband, and 
the Standard Oii-LG. Farben correspondence, an officer of the 
Ninety-fourth said to hell with the regulations and made me put 
a pistol in a shoulder holster under my field jacket. 

For two days we prowled among the rocks and cowpaths that 
served for roads in the Harz Mountain area and finally located 
several cabinets full of documents hidden underground in an air-raid 
shelter at Bad Sachsa. It turned out that the very building the 
American occupying troops had chosen for a headquarters was the 
I.G. Farben-owned **Haus der Dynamit A.G.** Colonel Cole, the 
commanding officer of Combat Command "B** of the Fifth Armored 
Division, was amused when we turned up these documents right 
under the window of his office and still others in the walls of his 
officers' mess. There were heavy loose-leaf files of correspondence 
between Frank A. Howard and Fritz Ringer; and cabinets filled 
with minutes of meetings and interoffice correspondence about the 
Standard Oil negotiations. Colonel Cole kindly furnished trucks to 
haul tliese back to Frankfurt where they were compared with other 
papers, and the documented story pieced together. 

The papers we picked up indicated that Mr. Frank A. Howard of 
the Standard Oil group and Dr. Ringer of LG. Farben had met in 
the last week of September 1939, at The Hague. They prepared a 
document that became known as the "Hague Memorandum." This 
document appeared on its face to be an agreement under which 
LG. Farben sold to Standard Oil of New Jersey various patents 
and shares of stock. Actually the two men also prepared a separate 
agreement, kept secret, under which LG* Farben retained the right 


to cancel the transfer and get its properties back as soon as it was 
safe to do so. Mr. Howard did not even keep a copy of this agree- 
ment* He signed the original and the carbon copy on behalf of 
Standard Oil and handed both copies to Dr. Ringer, who took them 
back to Frankfurt. 

The Standard Oil case might very well have had a happy ending 
for the fraternity brothers if tlie suit had been filed in 1947. Even by 
1946 it was to become very difficult for United States government 
representatives to get faas from German files. It was not long be- 
fore we had to show cause why we should be permitted to prowl 
about among the business papers of reputable German concerns. 
By X947 investigations which the Germans considered troublesome 
would appear doubly objectionable to American businessmen acting 
as military government officials in Bizonia. Investigations that might 
disclose embarrassing transactions between American and German 
companies were called a "waste of taxpayers* money." Also, trou- 
bling busy German industrialists with unfriendly questions would 
tend to "interfere with German recovery*' and might arouse ''an- 
tagonism." In the end we were caught between businessmen repre- 
senting private interests and others of the same persuasion holding 
official positions, where they had power to change the orders under 
which we operated. But for a brief period in 1945 matters were not 
so well under control. True, we found a number of members of the 
international brotherhood, commissioned as colonels and brigadier 
generals in the army, moving about rather freely in the field on 
matters of their own concern; but by the same token it was also 
possible for representatives of the government to get around freely 
as we all did in the Standard Oil case. 

The documents needed by the government to establish the falsity 
of the Standard Oil claim were finally shipped by air back to the 
United States, along with Dr. von Knieriem as a government wit- 
ness. Dr. von Knieriem, who had supervised Ringer's work, had 
annotated his own copy of the secret Hague Memorandum with 
comments showing its true intent. One of these phrases alone should 
have been enough. It was a marginal note, **Nach Kriegs Kamou- 
flage^' (postwar camouflage). 

Not only was this case unusual in that enough trained manpower 



was available, for once, to track down the evidence, and that con- 
ditions permitting full investigation happened to prevail, but be- 
cause the Federal Courts in dealing with the evidence used unusually 
strong language to describe what the fraternity brothers had done. 
The following examples from the opinion of the Circuit Court of 
Appeals may illustrate: 

The negotiators prepared the so-called Hague Memorandum 
which was neither an accurate summary of the past dealings of 
their companies, nor complete and faithful representation of the 
agreements made at the Hague. • • , 

The real agreement which was made by Mr. Howard and Dr. 
Ringer and which was later ratified by their principals can be 
gleaned only after a scrutiny of many documents and the oral 
testimony of Mr. Howard. . . . 

The Court found that these were sham transactions designed to 
create an appearance of Jersey ownership of property interests 
which nevertheless continued to be regarded by the parties as 
I.G. owned. The parties intended that after completion of the 
war and the resulting disappearance of the danger of United 
States Government controls the property would be formally re- 
turned to I.G. and the pre-war relationship resumed. . . . 

On the witness stand, Howard, testifying concerning the Hague 
Conference, was, in the opinion of the Court, not a credible wit- 

In efJect the courts held that the Standard Oil Company had tried 
to put across a misrepresentation in order to protect an outpost for 
LG. Farben. Whereas President Roosevelt had referred to the use 
made of the I.G. Farben trust by the Nazis, and had insisted on the 
"eradication of these weapons of economic warfare," Standard Oil, 
in the middle of the war against the Nazi state, had invoked the 
aid of the Federal Courts to defeat the measures of the United States. 

Frank A. Howard was not prosecuted for perjury. The District 
Court and Circuit Court of Appeals merely declared he was not a 
"credible witness." The Supreme Court did no more than sustain 
the action of the lower courts in upsetting the sham transactions and 
letting the Alien Property Custodian keep the patents and stock. 
Mr. Howard retired gracefully in 1945, full of honors, as vice 



president of Standard Oil Company of New Jersey, having retired 
the previous year from his other position as president of the Standard 
Oil Development Company. 

This arrangement between Standard and Farben was only one 
of many conspiracies between German business leaders and their 
counterparts in the United States and Britain to help in keeping alive 
bridgeheads for future ''economic warfare." At the time we dis- 
covered them it would have been hard to forget the other side of the 
coin: that these same German organizations — LG. Farben, Krupp, 
Flick, Mannesmann, Siemens & Halske, and a few dozen more — 
had shown their less gentlemanly and more brutal side in the slave 
camps and murder factories, and in the looting of occupied Europe, 
all by ^'legal" means under Nazi laws. Before the press carried pic- 
tures of the murder camps at Bclscn and Auschwitz and the records 
of I.G. Farben's poison gas experiments on slave laborers, It might 
have been possible to concede that some American businessmen 
connived at preserving these organizations for the postwar period 
without knowing the awful truth. We hoped that the record after 
1945 would not reveal any conniving in the revival of similar types 
of "industrial*' organizations, or any reliance on the same men to 
guide Germany's economic recovery. 


The Heavies 

THE House of Krupp has been a symbol o£ German militarism 
for generations. The Krupp family mansion, the Villa Hiigel, on a 
hill overlooking the Ruhr River at Baldcney just south of Essen, 
was more than a symbol. It was a very big house. With the Krupps, 
bigness became a fine art. Set among hills, the Villa Hiigel was 
not dwarfed by its surroundings but dominated them. At sunrise 
on a summer morning, when the hills by the river are still steaming 
as though they had their feet in hot water and a blanket around 
their shoulders, the villa stands up with its blackened stones and 
square bulk untouched by fog and mist. It looks like the Carnegie 
Museum at Pittsburgh. The main house has one hundred and 
twenty rooms, and the "little house" attached to it a mere ninety. 
In the dining room, twenty-five by ninety feet, the sixty-foot dining 
table was covered by a one-piece damask cloth. The dining room 
was small in comparison with the main salon, size forty by one 
hundred feet; but the furnishing of both left no feeling of empti- 

The Villa Hiigel, taken over by the "T" force unit of XX ii 
Corps, was operated as a combined billet, mess and office for inves- 
tigators working in the area. All investigation units were inter- 
viewed at the end of each day so as to build a pool of information 
on records and personalities. We were welcome to make good use 
of these facilities. Then, for help in following leads, or putting a 
guard on records we considered important, the division headquar- 
ters in the particular area detailed men for the job. It made a good 
headquarters for our investigations in the Ruhr, not only because 
it was one of the few buildings in the area untouched by bombs, 


but also because investigations go more easily if they fan out from 
a focal point from which the activities under investigation were 
originally directed. The memory of minor employees for appar- 
ently unimportant details, and the jottings, diaries and other notes 
that accumulate around a headquarters supply the clues to the char- 
acter of the whole operation. 

As we began to look at the Ruhr and its heavy industry from 
our starting point in the center, we could see some of the relation 
of the Krupps to the Nazi state. Prewar movies had pictured the 
goose-stepping Nazis as the absolute masters of Germany. Hitler 
had only to command and the most powerful of the pre-Nazi 
potentates would snap to obey — or else. Our poking about in the 
Villa Hiigel and questioning of Alfried Krupp and his works man- 
agers erased that impression. Adolf Hitler and his Party had never 
been allowed quite to forget that they had depended upon the indus- 
trialists to put them in office, and that in the future they could go 
further with the industrialists* help than without it. In the earlier 
days of the Third Reich, Hitler never made a major decision with- 
out being sure in advance that he had the backing of the Krupps 
and the other Ruhr and Rhineland industrialists. Before he em- 
barked on his big purge and reformation of the Nazi Party in 
July 1934, Hitler went first to the Villa Hiigel for a long con- 

Generations of Krupps had been accustomed to sitting at the 
Villa Hiigel and planning what the Krupp works would do. Some- 
where in the recesses of this mausoleum was born the thought of 
the Big Bertha of World War I. Perhaps it was only natural that 
World War II should have had its enlarged counterpart in Great 
Gustav, a mammoth gun ninety feet long with a bore thirty-two 
inches in diameter and capable of throwing its four-ton shell thirty 
miles. Great Gustav was the pride of the Krupps and the despair 
of the Wehrmacht. Only five such guns were made, at the expense 
of tying up a large part of Germany's biggest gun shop for the 
entire war. The one Great Gustav to see action was used against 
Sevastopol in the Crimean campaign, but only after railway bridges 
had been reinforced and traffic on the entire rail system from Essen 
to Sevastopol disrupted to make way for the monster. The second 


gun of its type got bogged down and lost somewhere on the way 

to the Russian front. Numbers three and four were picked up by 
the British. The last Great Gustav never left the Krupp gun shop. 
The lathe was hit by bombing raids in March 1945. Considerable 
tonnage o£ steel partially turned into projectiles lay scattered 
throughout the shop. 

The House of Krupp was many times a source of grief to Albert 
Speer, Minister of Armaments, in his attempt to get the Wehrmacht 
the types of equipment it wanted for the v/ar. The Armaments 
Ministry sometimes would have preferred to use materials and 
manpower for other purposes than those decided upon by the 
Krupps. But not all the relations between important German in- 
dustrialists and the German government followed the pattern of 
mutual help that had been the case with LG. Farbenindustrie. 
The industrial aristocracy of the Krupp dynastyj even though they 
represented far less power than did tlie LG» Farben combine, had 
simply assumed as a matter of right the prerogatives that put them 
above government, and especially government by upstarts. 

One began to see some basis for Adolf Hitler's reported appetite 
for chewing oriental rugs. In dealing with the Krupps, the question 
was not what the Krupps could do for the v/ar effort, but what 
the war effort could do with what the Krupps had to offer. A mere 
Nazi, Hitler faced a problem in trying to deal with these people 
who knew exactly what they wanted their factories to produce, and 
when and where. 

Gustav Krupp von Bohlen und Halbach and his son, Alfried, were 
not among the earliest supporters of Hitler and the Nazis. They 
joined in with the rest of the Ruhr and Rhincland industrialists in 
response to Hitler's appeal for funds only after a meeting of leading 
industrialists at Berlin on February 8, 1933. Up until that time, the 
Nazis and their program had appeared too radical for the conserva- 
tive tastes of the Krupps. An important consideration behind the 
ultimate sponsorship of the Nazis by Gustav and Alfried vvas their 
experience with a long strike in 1932, which the Nazis helped them 
to break. The Krupp management showed a great deal of enthusi- 
asm for the Nazi labor policy because they fek that discipline and 
authority was needed in the ranks of labor. After the licrlin meet- 


ing of February 8, 1933, Gustav Krupp accepted the chairmanship 

of the Reich Association of German Industry and undertook to 
reorganize German industry to ''bring it into agreement with the 
political aims" of the Nazi Party. 

The somewhat arm's-length relations between the Krupps and 
the Nazis was by no means one of antagonism. The Krupp hold- 
ings fared very well throughout the Hitler period; and the fam!ly*s 
wishes were always highly respected. From the time the original 
jRrm was founded in 1812 until the grandson of the founder died 
in 1902, leaving a daughter, Bertha, as heir, the company had been 
a private family enterprise. In 1903 it became a corporation, Fried- 
rich Krupp A.G. But in 1943, by decree of the Fiihrer, the Krupps 
were given the privilege of reconverting the corporation into a pri- 
vate holding, with Bertha and Gustav's son, Alfried, as sole owner. 
Normally employing about two hundred thousand persons, the 
firm during the war maintained in addition to its German employ- 
ees an average of over fifty thousand foreign workers and nearly 
twenty thousand prisoners of war, all of whom got the full benefit 
of the new labor policy, including the discipline and authority which 
had been lacking at the start of the 1932 strike. Especially satisfac- 
tory from some points of view was the "extermination through 
work" program for certain classes of concentration camp workers. 
In the rarefied and museum-like atmosphere of the Villa Hugel, 
Alfried Krupp, who was under house arrest in the gatekeeper *s 
lodge, could make the idea sound almost digestible until you thought 
of what his well-rounded phrases were actually saying. 

Our inquiry into the affairs of the Krupps was itself an offshoot 
of a larger investigation into the operations of the big Ruhr steel 
combines. During the few days before we were called into the hunt 
for evidence in the Standard Oil case, I had made a hurried trip to 
the Ruhr to start the investigation, heading for Diisseldorf. There 
the Stahlhof stood as a ten-story monument to Fritz Thyssen's 
United Steel Works, in a country where a ten-story anything was 
rare. The Stahlhof had housed the officers not only of the steei trust, 
but also of the Stahlwerks Verband, the German national steel 
cartel, and of Stahlunion Export, United Steel's **foreign relations" 
department. Stahlunion Export had controlled the steei trust's one 



hundred and seventy-five foreign branches in co-ordination v^^ith the 

foreign organization of the Nazi Party. 

The army had picked the Stahlhof for the Ninety-fourth Divi- 
sion headquarters. After Frankfurtj the pattern w^as becoming fa- 
miliar. There was a certain poetic irony in the way these {ortrcsscs 
of German economic warfare converted so readily to the needs of 
a mihtary headquarters. A few blocks away, the tax office for the 
administrative district of Diisseldorf probably contained more cu- 
bic feet of usable office space, and was in fact being converted to 
house German administrative agencies and several American and 
British military government detachments. But the corridors and 
offices had a hospital-like plainness and uniformity, more reminis- 
cent of a civil service building, whereas the Stahlhof pyramided 
upward with a sense of hierarchy and increasing magnificence. The 
approaches to the high-ceilinged head office in the Stahlhof, at the 
top of a broad, sweeping staircase^ set off by tall doors of dark 
wood and several heavy bronze figures against a light wall, created 
an impression of overwhelming power. It would take a man of 
very strong character indeed to work in such surroundings with- 
out developing a power complex. 

The military government officer of the Ninety-fourth, Colonel 
St. Claire, had his own staff set up in the tax office building. We 
took over temporary offices there, too, while we plotted an itinerary 
to the offices of the important steel combines and other firms on 
our lists. Our m^p then showed where we might expect to find their 
records and key officials. 

In the next two days, May 17 and 18, we covered a lot of terri- 
tory and discovered a great deal about the stamina and doggedness 
of the men who had run the Ruhr. Early in 1945, the Rhine cross- 
ings, first at Remagen to the south and then at Wesel to the north 
of the area, had produced a pincers that encircled the ''Ruhr pocket" 
and met between Hamm and Paderborn at the headwaters of the 
Ruhr River. Through all these military movements, the managing 
directors of the big industries acted like a bunch of ants whose hill 
is being disturbed. Each one grabbed a large egg, consisting of the 
files and papers he considered most important, and took it some- 
where. What with the bombings and tlie coming and going of 


German military units on all the roads, this must have been a feat 

of considerable ingenuity. It would be hard to count the number 
of times during the next two months that we were to travel sev- 
eral hundred miles to find tremendous stacks of recently moved 
papers that must have required six or eight vans. 

The net result was that a great deal of the Ruhr puzzle was 
unscrambled and laid out for an investigation, much more com- 
pletely and visually than if the records had all been left in one 
building to be sorted out by the investigators. It was worth driving 
miles to sec the inner workings of Ruhr finance and industry un- 
wound and laid out at different points on the map for inspection. 
By Friday evening, the eighteenth, our map looked like the end 
of an amateur taffy pull 

From our first two days' work, we already had dividends to 
show. We had picked up two suitcases of papers belonging to 
Friedrich Flick, the self-made steel man who had multiplied his 
holdings with slave labor and the Nazi "Aryanization'* laws. He 
would have been better off if he had stayed and burned the papers. 
They showed that his forty-thousand-doliar annual premiums to 
the Himmler fund had yielded the best from the SS labor pro- 
curement service. The SS had provided Flick with unlimited quan- 
tities of slave laborers from the concentration camps, at the very 
low rates charged to special "subscribers," through a corporation 
known as the Deutsche Erd und Steinwerke. 

We had also struck pay dirt in another quarter. In a file cabinet 
at the Mann^smann pipe and tube combine we had found a list 
of places to which records had been moved, and a secretary's nota- 
tions on where the top directors had gone, including Wilhelm Zan- 
gen, one of the charter members of the "Keppler Circle." 

At the offices of the armament firm, Rheinmetall-Borsig, most of 
the main records were intact all the way back to the time of the 
French occupation of the Ruhr in 1923. At that time the company 
had gone ahead designing and manufacturing artiHery a few blocks 
away from the occupation headquarters. The finished ordnance had 
been tested at a secret firing range outside the occupied area, in 
the Liineburger Heide between Ulzen and Celle, a few miles off the 
main road from Hannover to Hamburg. Following our growing 



impression that novelty was not the chief characteristic o£ the men 
we had to deal with, we were to find the missing financial records 
and most of the company's officers a few days later at the old hide- 
out, not far from where Heinrich Himmler himself was picked up. 
Himmler committed suicide at Liineburg on May 23. 

As we came back to the G-^ mess on that first Friday evening, 
I was handed a message that had been phoned mouth-to-ear all 
the way down the ladder from SHAEF Forward to Frankfurt to 
Wiesbaden to Bad Neuenahr to Hilden to Diisseldorf. The message 
was terse: "Report to airstrip Y-57 at Vorst near Siichteln at 1000 
hrs. Saturday, 19 May, by order of General McSherry.** Even a 
civilian, privileged to question why, had no way of talking all the 
way back to the man who knew. General Frank J. McSherry was 
the American deputy to General Grassett, the British head of 
SHAEF G-5. The only thing I could do was to keep the mysterious 

It would have been hard to think of a worse time to be called in 
to give an account of what we were doing. From every indication, 
if we just had the manpower to follow a few of the most impor- 

tant threads, we would have a much more devastating picture than 
anything we had seen from our discoveries in the United States. Yet 
all this was mere possibility for the future. If we were to be pulled 
out and ordered to stop the investigations, it would not take the industrialists long to close the curtain. 

At the airstrip these doubts were erased. Major Vaughn, General 
McSherry's executive officer, had come up with the crew. He said 
we were heading for Reims; that Senator Kilgore had arrived with 
five other members of the Senate Committee on Military Affairs 
and had asked to see me. The day was suddenly much brighter. I 
actually enjoyed the ride as we followed the Paris beam along the 
Meuse, across parts of Holland and Belgium, and turned off over 
the French cathedral town of Laon for the run into Reims. 

We found Senator Kilgore and the others with General Eisen- 
hower in the ''War Room" of the red schoolhouse. They were hav- 
ing their pictures taken near the table at which, twelve days before, 
the German High Command had surrendered. As the photographer 
packed his equipment Senator Kilgore got right down to business. 


His subcommittee, including Senators Ball, Brewster, Ferguson, 
Mitchell and Tunneli, was investigating the supply situation in 
connection with redeployment of forces to the Far East. But Presi- 
dent Truman had asked him to get in touch with me to find out 
how our investigations were coming. The Attorney General had 
been concerned about reports of our difficulties in keeping records 
from being dispersed, as at Frankfurt, and had spoken to the Pres- 
ident about it. The President had told Senator Kilgore to have the 
important records flown back to the United States, if necessary, to 
keep them from being stripped by the Germans. 

We continued the discussion at dinner and on the plane back to 
Paris. I pointed out that in order to find the key to what we were 
looking for we had to locate not only papers but also the men who 
made the papers significant. This job had to be done in the field, 
where we could interrogate anyone from the chairman of the board 
to the junior file clerk. 

Senator Kilgore wanted to know what Washington could do to 
help. On Sunday, May 20^ I brought General McSherry and Colonel 
Bernard Bernstein, deputy chief of the Financial Branch, to the 
Brown House at St. Cloud where the senators were staying. We 
discussed what we had been doing and in the end agreed on a pro- 
gram- Colonel Bernstein was leaving for Washington the following 
Tuesday. Senator Kilgore asked me to draft letters to the President 
and to the Attorney General and Secretary of the Treasury, out- 
lining the results of our conference and urging that an additional 
force of at least two hundred and fifty investigators, together with 
a supporting staff, should be thrown into the field to round out the 
job. On Tuesday, the Senator approved the drafts but added 
strengthening statements of his own before they were typed for 
his signature. To the President, he added: "It is my conviction 
that a great opportunity exists at the present time, and that our 
failure to take the required action would amount to a national 

Tuesday night Colonel Bernstein took off, armed with the three 
letters and a personal note from the Senator to Ed McKim, admin- 
istrative assistant to the President, urging an early appointment for 
the Colonel. Colonel Bernstein had two interviews with President 


Truman and returned two weeks later with full approval to recruit 

the staff we had requested. 

On my way back to the anthill in the Ruhr, I flew first to Frank- 
furt to see how our small contingent was getting along in pursuit 
of the contributors to the Himmler fund and other key figures. 
They were doing very well considering all the difficulties. They had 
pulled together much more than we had known before about I.G. 
Farben and two other closely interconnected groups, the manage- 
ments of the Metaligesellschaft and of the precious metals group 
known as "Degussa," short for Deutsche Gold und Silber Scheidean- 
stalt. Also Friedrlch Flick had been picked up and added to the 
growing reference library of Himmler fund contributors in the 
Frankfurt jaik The firm of Robert Bosch of Stuttgart had yielded 
a great deal of new light on old methods of foreign camouflage. 
The French pursuit of the Rochlings was reported to have been suc- 
cessful. The men from the electrical equipment combines, Siemens 
& Halske and the Allgemeine Elektrizitiits Gesellschaft, remained 
to be picked up as soon as Berlin was accessible. Gerhardt Westrick 
was still on the loose; but he was being tracked. We still needed 
to question a group of top men in the Ruhr to sketch in more of 
our picture of the economic backbone of the Nazi State- 

The Villa Hiigel was hot with discussion about these men when 
I returned to our joint Anglo-American detachment of investigators. 
One evening, the l^ritish Control Commission's director of economic 
affairs, Sir Percy Mills, dropped in with his American opposite num- 
ber, Brigadier General William H. Draper, Jr., an investment 
banker. At breakfast the next morning, Major Ernst Ophuls, my 
American executive oflScer who had been heading our investigation 
of the Krupps, commented on how strangely the policy of removing 
Nazis was working out. The Public Safety Branch of Military Gov- 
ernment had screened domestic servants at the Villa Hiigel the pre- 
ceding day and found that the laundress was a member of the Nazi 
Party. Major Ophuls said that it was curious to see so much effort 
being devoted to purging washerwomen when men like Edouard 
Houdremont, Wilhelm Tengelmann, Heinrich Dinkelbach and 
Hugo Stinnes were still running around loose and keeping their 
jobs. Sir Percy wheeled on Ophuls. "What's wrong with them?" 


he demanded. 'They were not Nazis; they are businessmen." 
Ophuls began in a conversational manner to describe some of the 
things we had been finding out about Sir Percy's businessmen; but 
Sir Percy cut back sharply and indignantly. General Draper's gritty 
voice threw in a conversation-stopper with the tone of a brigadier 
general addressing a major. The Major quietly ate his oatmeal, 
as though it were spinach with sand in it. 

Keeping in mind that Gustav Krupp and the other Rhineland 
industrialists were not Nazis, but businessmen, we wanted neverthe- 
less to fill in some details of the success they had enjoyed. Gustav 
Krupp on April 6, 1938, after the capitulation of Austria, had 
expressed ''deep appreciation to our Fuhrer'* for fulfilling "centuries- 
old dreams." On October 13, 1938, after the occupation of the 
Sudetenland, he had spoken of the "world-encircling success brought 
about by tlie Fuhrer*s faith and strong will/* 

Without the Fiihrcr's help, after World War I, the Krupps had 
successfully prosecuted a claim for ^^65150,000 against the Vickers 
armament firm in Britain for patent royalties on all the hand- 
grenade fuses that Vickers had turned out for the British army 
during that war. In settlement, Vickers had turned over an inter- 
est in a steel works in Spain, which the Krupps found very useful. 
The Versailles Treaty limited their steel and armament manufac- 
turing activities inside Germany. 

The Krupp records confirmed that in many cases this firm had 
used its patents to fulfill old dreams. At the time of World War I 
Krupp had owned two basic patents in the United States covering 
the manufacture of stainless steel. These had been seized by the 
Alien Property Custodian and sold to the Chemical Foundation, 
which then issued licenses to American companies. After the war 
ended, however, two Krupp patent applications, which had not been 
seized by the Custodian, were approved by the United States Patent 
Office. The patents finally issued to Krupp in 1926. Krupp promptly 
informed all American companies making stainless steel that their 
licenses from the Chemical Foundation were worthless, because 
they were now infringing upon the new patents. The American 
companies capitulated rather than face protracted litigation. 

In 1928, Krupp organized the Krupp^Nirosta Corporation of 


Delaware, as a patent holding and licensing company. Through its 

licensing system, Krupp-Nirosta was able both to restrict stainless 
steel production in the United States and to send reports to Essen 
showing the exact production in the United States of special steel 
for turbine blades, aircraft exhaust systems and other uses requir- 
ing rustproof or acid-resisting metal. 

The president of Krupp-Nirosta was a German citizen, Emil 
Schill, who had moved to the United States in 1905 to represent 
various German industrial interests including the iron and steel 
business of Fritz Thyssen and the Krupps. During the next thirty- 
odd years he gained a considerable experience in representing these 
German firms. In April 1939, Dr, Schill had felt depressed over 
conditions in the United States. "The waves of anti-Nazi feeling 
and movement are rising higher than ever before. . . . You can 
well imagine that under such conditions life is not at all a pleas- 
ure here.*' In May 1940, after the Germans occupied France, Dr. 
Schill was happier. He wrote to Essen: **What our soldiers accom- 
plish on land, in the air, and on the sea, is simply unbehevable. No 
wonder that I buy five to six papers daily." 

In December 1939, Dr. Schill sent a proposal to Essen under 
which Nirosta would take over Krupp s business in the western 
hemisphere for the duration of the war. As Dr. Schill put it, "There 
will be many instances where customers of Krupp's special prod- 
ucts, who are now cut off from Germany, will look for replace- 
ments in American markets." If Krupp-Nirosta took over, he wrote, 
"The advantage for Krupp lies perhaps less in the sharing^ of the 
profits of such devils, than in the maintenance of contact with for- 
mer customers, and that you, upon the return to normal conditions, 
would be posted as to what and from whom the temporarily lost 
customers had bought in the meantime." 

Krupp-Nirosta was, however, for legal purposes a non-German 
corporation having nothing to do with the Krupps. The Krupp 
firm on February i, 1937 had been unable to redeem certain bonds, 
part of the Young Plan loans from American investors. This de- 
fault occurred because of the Nazi foreign-exchange controls. To 
avoid attachment of the Krupp interest in Krupp-Nirosta by the 
American bondholders, Krupp transferred the ownership to a 


Dutch banking firm, H. Albert de Bary & Company of Amsterdam, 

in May 1937* This camouflage was not wholly successful, because 
one American group of bondholders managed to find enough evi- 
dence of the switch to get a court order attaching the Krupp-Nirosta 
stock. Krupp, in 1939, reached a compromise with the security 
holders and immediately set about arranging a new camouflage 
that would work better during the coming war. To carry out this 
arrangement the Dutch bank sold its interest in Krupp-Nirosta 
to an independent company, Wolframcrz A.G, of Glarus, Switzer- 

In a Krupp iron mine we found three large loose-leaf binders 
of Krupp records marked " Wolframerz A.G., Glarus.** They showed 
that the "independent** Swiss firm had retained Dr. Martin Louis, 
a director of Krupp, as consultant to guide their dealings with 
Nirosta. The Swiss firm had continued the Krupp practice of nam- 
ing Emil Schill and Hans von Briesen to serve as their proxies at 
stockholders* meetings in the United States. The Nirosta group 
had continued to send the reports on American stainiess-steel pro- 
duction to Essen. In August 1939, Schill was in Germany and wrote 
to Essen from Stuttgart asking for an introduction to Wolframerz 
so that he could pay his respects to his parent corporation. Dr. 
Alfred Busemann of Krupp wrote Schill: "V/e would rather you 
did not visit Wolframerz. They are merely a holding company, and 
I do not want to divulge to them anything more about Nirosta 
which would probably be unavoidable if you visited them.'* 

In January 1940, the Nirosta management in the United States 
had become worried about the sufficiency of the Swiss camouflage. 
They persuaded Krupp to allow a change of the Krupp-Nirosta 
name to "Nirosta Corporation." They also proposed that the con- 
trolling shares be transferred to American ownership, with an ofF- 
the-record agreement for repurchase by the Krupps after the war. 
The Krupp officials rejected the scheme in July 1940 because they 
Were sure Germany was winning the war and they felt that the 
Swiss camouflage was enough. In this respect they were wrong. 
When the United States entered the war, the Alien Property Cus- 
todian seized the shares as German-owned, a contention which the 
Krupp records themselves now proved. 


On May 24 and 25, Colonel Kellam and his expert accountant, 
Leslie Gage, joined Ernst Ophuls and me in questioning directors 
Schiirmann and Brandstatter of Krupp, Hermann Winkhaus, 
director o£ Mannesmann, and Heinrich Dinkelbach, director of 
United Steel, to find where the financial records and the personal 
files o£ the directors of these three firms had been stored. Wc had 
been finding that the kind of records the directors chose to move 
was often an index of what they considered important either for 
their own use or to keep from us. 

We found that the Mannesmann records on foreign business had 
been taken by the general manager, Wilhelm Zangen, to Hameln, 
a story-book town on tlie River Weser where the Pied Piper was 
supposed to have drowned all the rats. The Krupps had moved 
their securities and records of interests in other companies to 
the old **Hansa" mine at Oker, north of Goslar in the Harz 
Mountains, and their records of foreign operations to the "Echte" 
mine, a few miles south of Goslar. United Steel had moved the 
files of the German national steel cartel, renamed the "Walzstahl 
Verbandj" to the university town of Gottingen, south of the 
Harz* Their financial records were further to the west at Siegen 
in Westphalia, and their records on foreign connections were in 
the "Siiberwiese" mine in the Vv'^esterwald, a few miles east of 
the Rhine, opposite Bonn. It was these records^ and the men who had 
gone with them, as well as the records of the Standard Oil-I.G. 
Farben deals, that occasioned our circuit of the Harz Mountains in 
the last days of May 1945. 

We found Wilhelm Zangen, general manager of the Mannes- 
mann Rohrenwerke A.G., living comfortably in Hameln, where 
he had moved the more important company records from Diissel- 
dorf. We had brought along Hermann Winkhaus, the technical 
director, who had been sitting on what was left of the Mannesmann 
offices in Diisseldorf, to make sure we had no trouble locating the 
big boss of the corporation that controlled most of Europe*s pipe 
and seamless tube production. The Mannesmann firm controlled 
three hundred and twenty-eight mining, fabricating, and sales sub- 
sidiaries and normally employed over fifty thousand persons. 

Wilhelm Zangen, the autocrat of Mannesmann from 1934 on- 


wards, had been a member of the Nazi Party since 1930. He had 

joined the firm to represent the Deutsche Bank, Germany's larg- 
est commercial and investment bank. The Deutsche Bank began 
to move into control of the firm soon after it was founded in 1890 
and gradually forced out the two founders, the brothers Max 
and Reinhardt Mannesmann. By 1908 the Mannesmann family had 
no active part. The Deutsche Bank always kept the firm abreast 
of new developments. When United Steel went into the tube busi- 
ness v^^ith the help of American loans in 1926, Mannesmann ac- 
quired coal and iron mines, blast furnaces and steel mills and turned 
out sheet steel, valves and other products in competition with 
United Steel. The bank always voted between 50 and 80 per cent 
of the stock of the combine at the stockholders* meetings and saw 
to it that officers of the bank were elected to the board of directors 
and that the representatives of the bank were appointed to super- 
visory positions in other companies controlled by Mannesmann in 
Germany and abroad. 

The first incomplete list of officials of all the Mannesmann com- 
panies, which Zangen and his associates made up for us at Hameln, 
showed thirty Deutsche Bank officials distributed throughout the 
world-wide Mannesmann organization. The oil and pipeline com- 
panies that were Mannesmann's biggest customers had representa- 
tives on the Mannesmann board to help stabilize the general poli- 
cies; but these customer firms were themselves part of the Deutsche 
Bank*s domain. For example, the Deutsche Bank controlled the 
largest of Germany's domestic oil companies, the Deutsche Erdoel 
A.G., known as DEAG, by representing the largest single block of 
the outstanding stock at annual meetings. The Deutsche Bank had 
the right to name the chairman of the board of DEAG. Policies 
of the oil company were agreed upon between the Deutsche Bank 
representatives and members of the United Steel group, holding the 
second largest block of shares. The deputy chairman of the board 
of DEAG w^as a member of the Poensgen family; and the director 
general of DEAG from 1939 onward was a former director of 
United Steel. 

The Deutsche Bank treated the combine like a herd of cows to 
be milked at regular intervals and steered into the political pas- 


tures where the herd would fatten quickest and produce the most 
milk. Mannesmann fattened quickly under the new conditions 
created for it by Hitler's Reich. The merging of Deutsche Bank 
control and Nazi Party sponsorship worked smoothly when Zangea 
was pushed ahead to become general manager. From 1934 on- 
ward, under Zangen s management, and with his standing as one 
of the earliest backers of the Nazis, the combine went full steam 
ahead to ride the crest of the war production drive. It profited 
tremendously from the use of slave labor provided by the SS and 
acquired new properties in Germany and German-occupied coun- 
tries by ''Aryanization** and the other ways open to the Nazi eUte. 
Properties in the Saar, Sudetenland, Poland, France, Holland, Hun- 
gary and Roumania were taken over and co-ordinated as parts of 
the growing combine. 

After a few years of Nazi rule, even some of the industrialists 
who had been part of the original circle of men who brought Hit- 
ler to power began to worry about the way Zangen's Mannesmann 
and Thyssen's United Steel were edging out their old cronies from 
any role in the tube business. Too late, some of the odier west 
German industrialists banded together to try to keep Mannesmann 
and United Steel from dividing the entire tube and pipe markets 
of Germany, domestic and foreign, between them. At the first sign 
of trouble from the others, the steam roller went to work for 
Mannesmann and United Steel. In 1938, the Nazi government ap- 
pointed Zangen chairman of the top organization for mobilizing 
all the German economy, the Reichsgruppe Industrie. The next 
year, 1939, the Reichsgruppe Industrie moved onto a larger stage 
with a series of joint meetings at Dusseldorf between this German 
group and representatives of the Federation of British Industries, 
including Sir Percy Mills, to plan the future economic collabora- 
tion of Germany and Britain. 

Zangen himself was very reluctant to admit to us his part in 
Mannesmann's successes. In his rasping voice, he denied bitterly 
having had any special niche in the Nazis' hall of fame; but when 
he could offer no other explanation in response to Ernst Ophuls's 
c^uestioning he sulked or tossed back impertinent remarks. It was 
not until we went back to Dusseldorf, picked up Emil Gobbers, 


the company*s chief accountant, and put him to work with records 
moved back from Hameln that we got a graphic description of 
Mannesmann's growth under the Third Reich. Rene Manes came 
up from Frankfurt with Ed Rains of the Treasury Department to 
go into the company's books with Gobbers. They had the Mannes- 
mann draftsmen summarize the results on two large maps drawn 
in six colors, showing the company's properties by location and 
types as of 1936 and 1945. Superimposing the two maps was like 
watching a fireworks display. Each multicolored cluster of hold- 
ings seemed to burst and release a shower of new bright spots in 
all the occupied territories of Europe. To keep this exhibit from 
being swallowed by our headquarters for its artistic value, our office 
manager. Sergeant Ed Liddiard, requisitioned a color-printing es- 
tablishment near Diisseldorf and ran off fifty copies of each map. 

We wanted to hear from Zangen about Mannesmann s activities 
in the western hemisphere. We knew that the Deutsche Bank had 
given Zangen a free hand once he became general manager of 
Mannesmann. But Zangen said that he had delegated the manage- 
ment of the combiners affairs in our part of the world to Gustav 
Kocke, Kocke was not only an early Nazi, but an elder statesmen 
with experience dating back to the period of World War I. 

Zangen and all the others said they had no idea where Kocke 
was. He had retired in 1943 from his position in the management 
and retained only a nominal directorship, they said. But, of course, 
since Kocke had been the one who maintained Mannesmann's rela- 
tions with the western hemisphere, Zangen and the others claimed 
to know very little about that phase of the business. We finally 
found Kocke almost by accident when we stopped at Bad Sachsa, 
high in the Harz Mountains, following a lead to the Standard Oil- 
I.G. Far ben documents which Major Tilley had asked us to get. 
After we located those papers, the Intelligence officer of Combat 
Command ''B," Major Martin Philipsborn, told us that there was 
living in a house on top of the mountain an old fellow in whom 
we might also be interested. It was Kocke. 

On a flagpole in front of Kocke's house was a large Argentine 
flag. Everybody in Germany who could display a flag or a sign 
of any kind to indicate a non-German identity was doing so. The 


country bristled with signs proclaiming Danish or Swiss or Swed- 
ish consulates, or branch offices of British and American companies; 
but this was the only house I came across in Germany that was 
wrapped up in the Argentine flag. The house belonged to one Max 
Pahlke, a German who had acquired Argentine citizenship years 
before and had saved Mannesmanns Latin American outpost, 
Tubos Mannesmann, Ltda., from Argentine government seizure 
during World War L He succeeded in doing the same thing in 
World War 11. 

Kocke was pretty good at dodging questions. To judge by his 
own account, he was one of the most ignorant successful business- 
men of the age. It seems he stumbled along for years managing 
the foreign business of Mannesmann in the western hemisphere 
without ever knowing anything about what was going on. He 
knew even less than what the files of Mannesmann Export revealed 
when we went through some of them at Hameln. According to 
him, Zangen did not become 2 Nazi until after he was made head 
of the Reichsgruppe Industrie in 1938, and was never active in the 
Party. Kocke became a member in 1934, but said he was never active. 
Kocke knew Max Pah Ike only as a friend and had never heard of 
his espionage work for Germany in South America. 

Kocke did not know anything about Gerhard t Wagner either. 
Gerhardt Wagner had been manager of Mannesmann's agencies 
in the United States. We had to piece together the story of what 
Gerhardt Wagner had done for Mannesmann by putting together 
various things that Kocke denied knowing. We located a number 
of documents on Gerhardt Wagner some weeks later in an office 
in Diisseldorf that pretended to be the Swedish consulate general, 
but was actually a substitute office of the Mannesmann company. 
Hermann Friedrich, a director of Mannesmann, also served as 
Swedish consul general in Diisseldorf. He had taken some of the 
company's records and placed them under his diplomatic protec- 
tion, insisting that we had no right to enter his premises to look 
for them. Among other papers in this "consulate** were some in- 
teresting reports made out by Kocke's staff in the early part of the 
war. Several reports in particular were presented to the German 
Economics Ministry in order to get permission to spend dollars 


in the United States for Gerhardt Wagner *s salary. According to 
these reports, Wagner was performing valuable services for the In- 
telligence Service of the German High Command by transmitting 
blueprints and other details of machinery orders for war plants in 
the United States on which Mannesmann's American agency sub- 
mitted bids. Copies of letters from the High Command and blue- 
prints and reports from Wagner were attached as appendices in 
order to convince the Economics Ministry that it was desirable to 
keep this channel open even at the expense of using some of the 
precious dollars which the German government wanted to hoard. 

From Bad Sachsa we drove to Gottingen to beat the bushes and 
start driving quail back toward United Steel headquarters in Dus- 
seldorf. The records of United Steel were too near the order of 
magnitude of the I.G. Farben files for us to take physical possession. 
At Gdctingen, using a list we had found in a desk at the Stahlhof 
in Diisseldorf, I picked up Otto Feine, the head bookkeeper of the 
German Steel Association, and told him to take me to the Kaiser 
Wiihelm Park where, according to the list, Herr Peine was keep- 
ing some United Steel records. At an inn in the middle of the park 
we found eighty-five huge chests containing the central books of 
Germany's biggest steel trusts 

United Steel, unlike Mannesmann which was controlled by the 
Deutsche Bank alone, was a bankers' paradise. The books of United 
Steel in 1944 showed assets equivalent to $1,200,000,000, consider- 
ably bigger than the postwar valuation of the Texas Company or 
General Electric in the United States, and about on a par with 
Socony-Vacuum or Du Pont. The parent concern directly con- 
trolled three hundred and sixty-eight other companies and in addi- 
tion had two hundred and twenty-one affiliates and agencies inside 
and outside Germany. Not one bank, but all the principal German 
bankers had a finger in the pudding. The very existence of the 
United Steel combine depended, at its formation in 1926, on the 
willingness of British and American banks to float bonds with the 
American and British public to pay the cost of drawing together 
and expanding a combine that had little economic justification. 

United Steel was formed in 1926 by a merger of four concerns: 
the Rhein-Elbe Union, combined by Hugo Stinnes, Senior, in 1920; 



the Thyssen group; the Phoenix group, controlled by Otto Wolff, 

the Haniel family, and F, H, Fentener van Vlissingen; and the 
Rheinische Stahlwerke, controlled by I.G. Farbenindustrie. This 
combine of combines was Germany's second largest industrial com- 
plex. But whereas I.G. Farben, the largest, had oniy ten officers and 
directors who sat on the boards of other major industrial firms, and 
only one director who was from the outside — Edward Mosler of 
the Deutsche Bank — United Steels board was made up of a galaxy 
of bankers and industrialists, about fifty in all, who rotated through 
the positions on the supervisory board and in the management from 
the time the corporation was formed in 1926. The all-star cast, in 
addition to Flick and Thyssen, included Werner Carp, general 
manager of the Haniel family's Good Hope steel and machinery 
interests, and director of several of Flicks companies; Hans von 
Flotow, director of the Schering chemical combine, and of Gebriider 
Stumm G.m.b.H., one of the leading steel firms of the Saar; Carl 
Goetz, chairman of the board of the Dresdncr Bank, Germany's 
second Largest investment bank, and director of twenty other in- 
dustrial and banking firms of the first rank, including the Munich 
Reinsurance Company and Merck, Finck & Company, the bank 
which managed Hitler's private fortune. 

Others were Johannes Jakob Hasslacher, until his death in 1944 
a director of I.G. Farben and of the Deutsche Bank; Alfred Honig- 
man, director of the Berliner Handelsgesellschaf t ; Willi Huber, 
director of the Coal Syndicate; Alfred Hugenberg, industrialist and 
publisher, Hitler's first Minister of Economics and Agriculture, and 
one of the eariy leaders in the campaign to replace the Weimar 
Republic with a ''strong'' governtnent; Johannes Kiehl, director of 
the Deutsche Bank and of AKU, the Dutch rayon trust; Karl Kim- 
mich, director of Rheinmetall-Borsig, Klockner steel, A.E.G., Flick, 
Henkel chemicals, and the Deutsche Bank; Gustav Knepper, di- 
rector of Flick and I.G* Farben subsidiaries and counsel of the 
RWE utilities network; Paul Marx, chsLirman of the board of 
the Commerzbank; Robert Pferdmenges, head of Pferdmenges & 
Company, Cologne private bank; Hermann Schmitz, chairman of 
the board of LG. Farben; Oskar Sempell, director of Siemens & 
Halske; Carl Friedrich von Siemens, until his death in 1942 chair- 



man of Siemens & Halskc and director of Mannesmann; Her- 
mann von Siemens, successor to Carl Friedrich and director of the 
Deutsche Bank; Heinrich von Stein, partner of von Schroder in 
the Bankhaus J*H. Stein; Otto Steinbrinck, director of the German 
National Railways and RWE utilities; and, until his death in 
1940, Otto Wolff, head of one of Germany's largest steel exporting 
firms. Frederik H. Fentener van Vlissingen, president of the Inter- 
national Chamber of Commerce from 1933 to 1937 and chairman 
of AKU, or Associated Rayon, in Holland was another outstanding 
member of United Steels inner circle. 

Albert Vogler, predecessor of Ernst Poensgen as cliairman, held 
wide directorships in companies including not only all the more 
important United Steel subsidiaries, but also such firms as Siemens 
& Halske, the RWE electrical utilities holding company, the 
DEMAG machinery and mining equipment works, and at least 
one of the principal subsidiaries of the Hermann Goring combine. 
Altogether, the thirty-five members of the supervisory board and 
board of directors who were active at the time the war started held 
over one hundred and sixty directorships with other companies. 
Fifteen were on the boards of jointly controlled subsidiaries of 
LG, Farben; twenty were officers or directors of the Flick combine; 
three were on the board of the Deutsche Bank; three with the 
Dresdner Bank; eight were with other big banks including the 
Commerzbank, Berliner Handelsgesellschaft, Pferdmenges & Com- 
pany, and the Bankhaus J.H. Stein. Seven were with the Siemens 
& Halske electrical equipment combine; seven were with A.E.G., 
the German General Electric Company; seven were with the 
RWE electric utilities; and one or more were on the boards of 
Krupp, Mannesmann, Klockner, Haniel, Daimler-Benz, DEMAG, 
Waldhof, Schering, Salzdetfiirth, Kali-Chemie, DEAG, and the 
Rhenish'Westphalian Coal Syndicate. 

In 1931, despite this blue-ribbon board of directors the combine's 
debts were greater than the share capita] plus reserves; and the com- 
pany was headed for the wringer. Friedrich Flick, who controlled 
the largest single block of shares in United Steel, began negotiating 
with some French steel producers who wanted to buy the controHing 
interest. The French producers proposed to reintegrate the econo- 



mies of Alsace-Lorraine and the Ruhr, cutting out the expensive ore 

imports from overseas that contributed so heavily to United SteePs 
operating losses. But the German press assailed this *'international- 
ism** as tantamount to treason; and Flick and the other directors 
began negotiating with the Briini ng cabinet. 

Chancellor Br lining's government became convinced that if 
United Steel went through reorganization, this would be a great 
blow to the coal, steel, electrical and other heavy industries of Ger- 
many. The government first began buying United Steel shares, 
which had been selling on the market at 25 per cent of par. This 
raised the open market price to a high of forty-one. Then in May 
1932, the government secretly bought the controlling block of 
shares from Friedrich Flick at ninety, three and one half times 
what the market had been when the government started to *Ves- 
cue" the management of United Steel. This transaction not only 
restored the personal fortune of Friedrich Flick, who retained his 
place on United SteePs board, but it also saved the fortunes of 
Fritz Thyssen, Otto Wolff, and others of the blue-ribbon panel that 
continued to govern the steel trust after government money flowed 
in to prevent "bankruptcy/* 

Flick's deal with the Bruning government left Fritz Thyssen the 
largest private stockholder in United Steel; and in 1933, Thyssen's 
first reward for his years of financial support to the Nazis was a 
capital reorganization which gave the government-owned stock 
back to United Steel and left Thyssen in control. Later on, Flick 
began to challenge Thyssen*s position. He managed to buy inter- 
ests first in the steel trust *s coal mining companies. In the end he 
succeeded in ousting Thyssen with some help from Goring' s right- 
hand man, Gauleiter Terboven, later commissioner for Norway. 
On the outbreak of war in 1939, Thyssen, who had aheady lost 
his inside track with the Nazis, broke w^ith Hitler and left the 
country. By his own account, this was an expression of his disagree- 
ment with the war policy. 

The star performer who came out as head of United Steel at the 
end of the war was Heinrich Dinkelbach, who had spent seven- 
teen years as understudy to Ernst Poensgcn. In December 1943, 


Poensgen gave up the chairmanship and retired to his country 

place in Austria, leaving Dinkelbach to succeed him. In replying 
to Poensgen's valedictory message, Dinkelbach wrote: 

• . . I have learned a great deal from you. If, among other 
things in your letter, you make special mention of my work in the 

Reichsgruppe Industrie . . . then I may now tell you that many 
a success can be credited to me for the reason that I set you up as a 
model for myself. All these labors are directed towards a closer 
integration of the economy. Such labors cannot be performed in a 
spirit of personal self-seeking. There must be a grand plan. Here 
you were a splendid teacher for mc. You never calculated meanly 
in Marks and Pfennigs for yourself and your company- You always 
saw the grand plan for the whole ... It shall be my aim to con- 
tinue my work in this spirit. I hope with you that the Vereinigte 
Stahlwerke will maintain and strengthen the position in the 
economy which it has acquired under your leadership and Herr 

On our return from the Harz Mountains we sent for Herr Dinkel- 
bach and had him come to our offices in Diisseldorf. We wanted 
to discuss with him the grand plan of United Steel, and the ideas 
of the common good and the welfare of the community which 
he had learned from Dr. Poensgen, as he watched United Steel 
strengthen its position in the German economy. Since the cor 
poration was always a high-cost producer and would have gone 
bankrupt if the government had not provided subsidies to make 
up for cost differences, in what sense was United Steel a strong 
company? How could it compete on an all-European or world- 
wide basi5 if national considerations were cast aside and govern- 
ment gifts withdrawn? 

We found that our notions of competition were practically unin- 
telligible to Herr Dinkelbach. What the Germans arc inclined 
to call "competition" has little in common with our conceptions 
of competition in price, service, or quality. It is more like political 
maneuvering and lobbying. The lobbying and political maneuver- 
ing might be within a privately organized trade association or car- 
tel, or it might be within government ministries or Nazi Party 


formations. A strong position in the economy was simply a posi- 
tion in which the directors of the firm found it easy to make arrange- 
ments to get what they wanted. 

United Steel was the giant in its field, and held its place in 
German industry partly by the sheer weight of Its productive power 
and partly by the political power of its managers. Some of the other 
industrial combines made up in other ways what they lacked in 
financial or productive power. Good Hope, or Gutehoffnungshutte, 

was one. r * t t ■ i 

The Good Hope complex is the family holding of the Haniei 
family. These holdings were spread over so many important lines 
of industry that the individual Good Hope companies, big as they 
were, were usually not the giants in any particular field. For over a 
century, coal had been the basis of the Hanlel interests. The col- 
heries were located in the Ruhr; but during the French occupa- 
tion of 1923, the ownership of most of the family*s property was 
transferred to a new holding company in Bavaria, the Gutehoff- 
nungshutte Nurnberg A.G., otherwise known as Good Hope Nurn- 
berg. The range of the combine's interests, beyond coal, iron and 
steel, included copper and cable works, and factories producing 
locomotives, rolling stock, automobiles, tankers, ships, diesel en- 
gines, steam turbines, farm machinery, mining equipment, com- 
pressors, stoves, castings, forgings, pumps, bridges, armaments, 
ammunition, and synthetic oil. Extensive engineering, steel con- 
struction, and shipping interests spread the company^s activities 
far beyond the manufacturing enterprises. 

The four main operating subsidiaries of Good Hope Nurnberg 
employed about 40,000 and had assets valued at $275,000,000. United 
Steel employed 275,000 and had assets valued at $1,200,000,000. 
I.G, Farben employed ^00,000 and had 55sets of over $3,000,000,000. 
Judged in comparison with their potential competitors, in the usual 
sense of the term, the Haniei companies might appear outclassed; 
but with the Nazi connections of their management and the Haniei 
family members, the Good Hope companies had very little to 
worry about* 

General manager of all the Haniei properties, from 1904 until his 
retirement in 1942 at the age of seventy-four, was Paul Reusch, 


lifetime friend of HJalmar Schacht and the first man to whom 
Schacht turned for shelter when he v^as released after the Niirn- 
berg trials. Reusch turned over the management to his successor, 
Hermann Keller mann, who first joined the management of the 
Good Hope firm in 191 8. Kellermann was also chairman of the 
Rhenish-Westphalian coal syndicate, the RWKS. This was Ger- 
many's largest coal association, which financed the early activities 
of the Nazis by levying an assessment on every ton produced by 
all the collieries in the Ruhr. 

The head of the family, Karl Haniei, died in November 1944, 
leaving Werner Carp, a member of the family by marriage, as the 
active head of the Haniei clan. Following our tour of the Harz 
Mountains and the interrogations of the Mannesmann and United 
Steel heads, we wanted to talk to the available members of the 
Haniei group in the Ruhr, and then to compare notes by talking 
to Carp, whom the CIC had detained in the American zone at 
Niirnberg. Before we could do this, Carp was suddenly freed from 
detention and turned up at his old offices in Oberhausen in the 
Ruhr. The first we knew of it was when we found the German 
social set in Diisseldorf all in a flutter over the return of Mr. Carp. 
One dowager told us he was such a nice man and such a good 
friend of Fentener van Vlissingen and Baron von Schroder, as 
well as other interesting and important people whom he had so 
often brought to their parties in Diisseldorf. On investigation it 
appeared that a British major had made a trip down to Bavaria 
to arrange for Carp s release into his custody and then had turned 
him loose. The British authorities promptly packed the major off 
for a two-year term in a British military prison. 

We turned our attention to other members of the clan. Dr. Franz 
Haniei was by that time too old to be active. Alfred Hankly self- 
styled black sheep of the family, claimed to be a vigorous anti-Nazi 
and said he had broken with the Haniei family in 1930. He was 
living comfortably on his farm outside Diisseldorf, under the pro- 
tection of American troops especially assigned to protect him — no 
one seemed to know by whose order. He denied any connection 
with the Good Hope combine and said his positions were entirely 
with shipping and coal mining companies which did not belong to 


the Good Hope complex. What we found out was diat the biggest 
shipping company in which Alfred was interested, Franz Haniel et 
Cie., Cm.b.H., was owned 42 per cent by Good Hope and 58 per 
cent by the coai-mining firm, Rheinpreussen. The Rheinpreussen 
firm, in turn, was one of the two mines in which Alfred Haniel 
held stock and directorships. The remaining interest in Rhein- 
preussen was held by the rest of the Haniel family. The story was 
similar with the rest of the companies in which Alfred admitted 
having interests. His "break'* with the family had consisted in 
retaining no identification with the top family holding company, 
but in helping to manage the mining and shipping properties. In 
this way, he could have it both ways* He w^as protected on one side 
by the good Nazi connections of the rest of the family, so far as 
his standing in Germany was concerned; and he was assured his 
position as a good anti-Nazi for external relations, because of his 
"separation" from the Good Hope combine. 

Margaret Bourke-White was photographing the Ruhr for Life 
magazine and staying with us at the Villa HugeL She visited Al- 
fred HanieFs farm at Hubbeirath, near the Autobahn east of Diis- 
seldorf, one afternoon shortly after V-E Day. Among other things, 
she took a photograph of Mrs. Haniel and the children standing 
in the doorway. That evening Alfred made a special trip all the 
way to the Villa Hligel to ask Miss Bourke-White to destroy the 
negatives. He said that he had been engaged on extremely confi- 
dential matters for the United States government and that these 
things would be jeopardized and great diplomatic complications 
would result if his present status were publicized. A few days later 
we brought him into our offices at Dusseldorf for questioning about 
his diplomatic complications and special status. We noted that his 
passport showed a dozen trips to Switzerland during the war, the 
last one in September 1944. The "status" that worried him, it ap- 
peared, was his large comfortable house, and a detachment of 
American troops which had been assigned by orders from higher 
up to protect the premises. He declined to discuss his extremely 
confidential work for our government, however. He said his con- 
tacts in Switzerland had been with Mr. Allen W. Dulles, head of 
the European mission of the Office of Strategic Services, and a di- 
rector of the J. Henry Schroder Banking Corporation. 


Here, at the end of May 1945, we were getting an answer to 
some of our questions about the "Rhineland industrialists/' From 
the start w^e had wondered what it was that distinguished this group 
in the Ruhr and Rhineland from producers of industrial goods in 
other parts of the world, who have sometimes been known to 
transact business for generations without finding it necessary to buy 
themselves a dictator. 

The Briining government had already made a number of con- 
cessions to the large combines by decrees and licensing laws that 
directly limited the power of "outsiders'* to engage in business. 
Industry groups and trade associations gradually got more and 
more powers under the Weimar Republic, enabling them to pass 
upon the eligibility of newcomers for licenses to engage in busi- 
ness. Under the Nazis, when the Four- Year Plan was adopted to 
strengthen the drive for self-sufficiency, the groups and associations 
got additional powers to allocate and apportion scarce materials or 
imported materials among the members. 

The demands of the "guns, not butter** formula in the over-all 
economy called for corporations to undertake high-cost operations 
which, in normal business terms, were not profitable. These opera- 
tions had to be **made" profitable by whatever bookkeeping arrange- 
ments or subsidies might be necessary. One of the first was to pre- 
vent competition inside Germany from "unco-operative" firms 
which had not yet seen the advantages of joining in the new eco- 
nomic system. A steel company experimenting with low-grade 
domestic iron ores, for example, had to be protected against com- 
panies using higher-grade ores from other sources. 

All of these types of controls, including financial controls, con- 
trols over the flow of investment, control over the right to expand 
or to enter into new lines of business, and the power to order the 
abandonment of small factories and the concentration of production 
in the larger ones, had a definite effect on the shape of the national 
economy. Even in a short period of five years, from 1933 to 1938, 
the so-called capital goods industries increased their activity to 
255 per cent of 1933. Certain heavy items like cement, pig iron, 
crude steel, finished iron and steel, motor cars, and trucks ad- 
vanced to between three and four times their 1933 level of pro- 
duction. Chemicals and electrical industries more than doubled. 


The production in light or consumer goods industries on the other 
hand went up only to 145 per cent of 1933. Production of vegetable 
oils and fats fell to 80 per cent of 1933 production, while food stuffs 
and textiles increased only 25 to 30 per cent above 1933. 

We were finding that the very existence of the Rhineland group 
had depended on their determination to build and maintain a 
concentration of heavy industry in a place where, by economic and 
technological standards, it did not belong. They had built so much 
steel capacity that the rest of German industry could not use it. As 
Hitler said, "Germany must export or die/* One definition of 
"Rhineland industrialists," we decided, is that they are those who 
combine together to carry out a program of heavy industrial ex- 
pansion, regardless of economic consequences, and then try to 
counteract those consequences by looking for a man on horseback. 

Each time we touched something new, we seemed to be opening 
up fresh questions faster than our small forces could find answers* 
With a growing sense that there were other *'Rhineland indus- 
trialists" in Britain and the United States, whose concern over their 
German counterparts might be more than the sympathy of one 
businessman for another, we were beginning to feel like men work- 
ing around a power house with uninsulated pliers, and thin rubber 


The Cantilevers 

MOUNTAIN peaks would not attract much attention if they were 
not sitting on top of mountains. In our first drive to find out how 
Germany was controlled, we had touched some of the peaks. 
Krupp, United Steel, I.G. Farben and some others stood out in such 
bold relief that they could hardly be overlooked. But there were 
connecting ridges in the shadows of these peaks. The Metallgesell- 
schaft A.G. was one. 

We had our first glimpse of the files and records of the Metallge- 
sellschaft early in April back at Kronberg in the castle of the princes 
of Hesse-Nassau. Though it was only a glimpse, it was illuminating. 
The "T** force team under Colonel Gordon found the lead to this 
hideaway while they were looking into German experiments with 
gas masks and decontamination agents to control I.G. Farben's 
new war gases, 

Kronberg Castle has taken its place in history as the scene of the 
theft of the Hessian crown jewels by an American colonel and his 
fiancee. I remember Kronberg Castle as a source of puzzles of the 
now-yoU'See-it-now-you-don't variety. Coming over from Frankfurt 
we could see the castle at Kronberg across the flat plain of the river 
Main. Its tower pierced the forest halfway up the side of the Taunus 
range. But the nearer we approached the castle the less we could 
see of it. It was lost to view as the road wound around among the 
trees, until we came upon it suddenly from above. Once inside, we 
found the contents as perplexing as the approach. Filing cabinets 
and packing cases were stacked about among elegant surroundings. 
On the wails were hung, frame to frame, portraits of the members 
of the British royal family and paintings of the Hessian princes and 



their ancestors- Queen Victoria, whose portraits were in several 
of the rooms, had married Prince Albert of Saxe-Coburg-Gotha, 
another branch of the Hessian line. Their family tics ran back over 
a century. 

Members of the family were stockholders in the MetalJgesellschaft. 
Though they did not serve on the board of the parent company, some 
of them had served as directors of foreign corporations in which 
Metallgcsellschaft had interests. In turn they countenanced foreigners 
on the board of the parent company, a somewhat unusual procedure 
for a German corporation* According to the records, the British 
Minister of Production, Sir Oliver Lyttieton, had been one of the 
directors of Metallgcsellschaft up to the outbreak of war. Represen- 
tatives of Lyttieton companies and representatives of the royal house 
of Hesse-Nassau had served as directors of joint Anglo-German 
enterprises in Spain, including participation in the Rio Tinto mines. 
A great many other bits and fragments of a similar sort turned up 
on this first cursory inspection. 

It was not until June 2, 1945 that we found an occasion for another 
look into the affairs of the Metallgcsellschaft at Frankfurt. This 
organization had figured quietly, but very substantially, in practically 
every industrial field that fell between the iron and steel industry 
and the chemical industry, especially in nonferrous metals and 
alloying materials. It controlled 40 per cent of Germany *s copper 
smelting and refining; 36 per cent of the lead smelting; dominated 
research and alloying of zinc; shared half-and-half with LG. Farben 
in the biggest nongovernment-owned aluminum works; shared three 
ways with Krupp and LG. Farben in conti-oUing over 60 per cent 
of the nickel refining. Krupp, United Steel, and the rolling mills of 
Hoesch A.G-, the three largest producers of tin plate in Germany, 
had secured most of their tin from Metallgesellschaft, which con- 
trolled over half of Germany's tin refining facilities. Also, LG. 
Farben and Krupp had joined together in 1934 and entrusted to 
Metallgesellschaft the job of developing mineral resources in Spain. 
One company controlled by Metallgesellschaft had secured a monop- 
oly of all raw materials from mines in Spanish Morocco. Other 
subsidiaries controlled the largest deposits of phosphate rock in the 
United States. With such accumulated details, we left the Ruhr on 



June 2 and headed for Frankfurt, hoping to find an explanation 
and an evaluation of the company's importance. 

The main building of the Metallgesellschaft, with its large, high- 
ccilinged rooms and wide marble staircase, was still occupied by the 
military government of Frankfurt; but a courtyard in the rear 
covered a large underground laboratory where a staiT of over one 
hundred German research workers could carry out their experiments 
with metal alloys, light metals, ores and chemicals. Neither the 
laboratory nor the main building had been damaged, but the brick 
annex and the other buildings surrounding the courtyard were a 
patchwork of makeshifts. The company*s employees crawled and 
shufHed about through the wreckage as they put their affairs back 
in order. To reach the financial records and the files of the com- 
pany's directors, we had to scramble up a ladder to the roof, and 
walk on improvised planks laid across the rafters under the ridge- 

The dominant members of the board of directors had included 
Dr, Carl Luer, director of the Dresdner Bank and the Deutsche 
Bank, and chairman of the board of Adam Opel A.G., the General 
Motors Corporation subsidiary in Germany; Carl Bosch, until his 
death chairman of the board of LG. Farben; Geheimrat Hermann 
Schmitz, who succeeded Carl Bosch; Hermann J. Abs, managing 
director of the Deutsche Bank; Karl Rasche, director of the Dresdner 
Bank and one of Goring's chief lieutenants; Hans Weltzien of the 
Berliner Handelsgesellschaft; Dr. Ludwig Westrick, chairman of 
the board of the government-owned United Aluminum Works; 
Hermann Schlosser, chairman of the board of Degussa, and a 
director of the soap and detergents combine, Flenkel & Cic., of 

This meant, in brief, that three industrial firms, LG. Farben, 
Henkel, and Degussa, and three of the big Berlin banks, Deutsche 
Bank, Dresdner Bank, and Berliner Handelsgesellschaft, as well 
as the Nazi ministries of the Four- Year Plan for rearmament, had 
supplied the over-all direction of the affairs of the Metallgcsell- 

The company had performed a planning, shaping and guiding 
function in the Nazi economy, reminiscent of Herr Dinkelbach's 



noble objective of the "greater integration of the economy." Es- 
pecially in the production of nonferrous metals, wherever Metall- 
gesellschaft did not itself have the inside track, it had close working 
arrangements with the companies that did. For example, we already 
knew that in aluminum, the greatest part of German domestic pro- 
duction was turned out by the government-owned United Aluminum 
Works, Vereinigte Aluminium Werke A.G. The second largest 
producer was the Aluminium Werk Bitterfeld, in which Metall- 
gesellschaft had a 50 per cent interest. But we found out also that the 
company participated on a fifty-fifty basis with United Aluminum 
Works in the ownership of the central sales office for aluminum at 
Berlin. In this connection we remembered that in 1939 the United 
States Bureau of Mines had asked the American consul general at 
Frankfurt for statistics on German production of light and non- 
ferrous metals. The consul general wrote back that German govern- 
ment restrictions prevented transmission of production data in these 
fields, but he had given to Metallgesellschaft A.G, the statistics 
on American production for the same year, 1939, which the Bureau 
of Mines had previously supplied. 

Here were eyes and ears concerned with more than the day-to-day 
affairs of an industrial machine. Actually two of the directors, 
Schmitz of LG. Farben and Rasche of the Dresdncr Bank, were 
destined to be convicted as war criminals for their part in planning 
and directing the preparations for war and in profiting from Ger- 
man conquests. In the war preparations, the Metallgesellschaft had 
acted as an agent to stockpile critical materials in which Germany 
was deficient, particularly copper, phosphates, pyrites, rubber, tin, 
and aluminum alloys* For some time, it was the sole German 
purchasing agency for mercury. 

This company was one of several German counterfoils, prepared 
ahead of time to forestall attempts of enemy nations to cut off 
supplies of strategic materials by means of blockades and "pre- 
clusive buying." The Metallgesellschaft was particularly suited to 
this work, with its world-wide network of engineering and industrial 
machinery companies situated in all the important industrial coun- 
tries. World trade in the nonferrous field has been controlled more 
by loose agreements and patent restrictions than by the production 


and sales quotas and price-fixing arrangements which are character- 
istic of formally organized cartels. 

The firm served as a meeting ground where many interests were 
brought together and worked into a pattern that balanced the in- 
terests of the banking and management groups, and of the Nazi 
government. Investment banks which supply abstract "manage- 
ment/* unfettered by absolute ties to soap, collar buttons, gold 
teeth or steel rails, are supposed to furnish a kind of balance to 
an industrial economy. The role of the banker-directors, Luer, 
Rasche, and Weltzien, we were told, was to keep the activities of 
the firm directed toward the greater good of all firms in which the 
banks had a finger, rather than toward the particular good of 
Metallgesellschaft alone. Karl Rasche, in addition, could represent 
the needs of the Nazi ministries. 

The principal stockholders in Metallgesellschaft were, in turn, 
companies performing a similar function in other parts of the 
economic system. The three dominant stockholders were Henkel, 
Degussa, and LG. Farben. Degussa, the precious metals combine, 
was a favorite child of the Dresdncr Bank. Its chief stockholders 
were Henkel and LG. Farben. The outstanding member of the 
supervisory hoard was Carl Goctz, chairman of the board of the 
Dresdner Bank. 

While Degussa's books showed assets worth only a little over 

fifty million dollars, it was second only to I.G. Farben in the range, 
variety and importance of its products in chemicals, metals, and 
related fields. 

Degussa had a growth unKke that of the massive giants of Ger- 
man heavy and synthetic industries. Instead of htcoming big in 
some one product, it grew more like a coral reef. Starting with 
precious metals processing, the company began to get control of the 
sources for raw materials and reagents that it needed. These, in turn, 
yielded by-products that could be used in other kinds of industry. 
But to make these by-products useful, they had to be combined with 
certain other materials. So Degussa would acquire the sources of 
these materials which, in turn, produced useful by-products, and 
so on, ad infinitum. 

Before this company had been in business many years, there was 


hardly an industry in Germany that was not completely dependent 
on Degussa for some essential product in which Degussa held a 
monopoly or a near monopoly. Beginning with activated charcoal 
and metals refining, Degussa had ended up in such fields as gas 
masks and mine-safety equipment. Beginning with cyanides, it 
had branched off into hardening salts, grinding materials, and 
tempering ovens for the machine tool industry. Degussa had a 
practical monopoly of carbon black for rubber tires, refractory 
materials and temperature-measuring devices for the metals indus- 
tries; platinum spinnerets and capillary tubes, as well as acetate and 
cellulose solvents, for the synthetic textile industry; rare earths for 
manufacture of optical glass; ceramic dyes and glazes for the ceramic 
industries; insecticides for agricultural use, and so on around the 

Degussa controlled so many patents in so many fields, often 
covering some intermediate product or process that other industries 
could not get along without, that it acquired an important status 
in all the industry-wide agreements, or cartels, in all its fields of 
interest. Most of these arrangements were not confined to Germany 

Cyanides furnished us with one example. To the average person, 
cyanides are familiar only as a principal ingredient in mystery 
stories. But industrially they are used as hardening agents and in 
a variety of other uses important enough to be the subject of an 
international arrangement known as the International Sodium 
Cyanide Cartel. This organization has fixed production quotas for 
its members on an international basis. Degussa was the leader of the 
continental European group. By quietly building up stockpiles of 
cyanides and then threatening the Anglo-American group with 
dumping, Degussa several times increased its quota of world exports 
and elbowed itself into a position to settle matters outside of Ger- 
many. One by one, companies outside the arrangement were either 
taken into the agreement, or payments were made to them for not 
manufacturing cyanides. Failing that, agreements were made that 
certain quantities would be bought from them at a price far above 
production costs, if they agreed to limit production, keep prices at a 
certain level, or limit their activities to a specified market. So far 


as the United States was concerned, the leading producer, Du Pont, 
was not legally able to join the cartel. It was agreed in 1932 that no 
correspondence on cartel matters would be sent to Du Pont in the 
United States, and that the British chemical trust, Imperial Chemi- 
cal Industries, Ltd., would act as Du Font's agent in these matters. 

From 1931 to 1939, the Ocean Chemical Company of Ramsbottom, 
England, was paid about twenty-five thousand dollars a year for not 
producing cyanide* In 1931, Degussa began paying a Professor 
Hene, of Berlin, about ten thousand dollars a year for not ex- 
ploiting his new process for the manufacture of cyanides. When 
Hene later moved to England and interested the Rand Mines in 
his process, Imperial Chemical Industries agreed to make a down 
payment of over fifty thousand dollars and annual payments of six 
thousand dollars to Rand Mines and Hene to refrain from manu- 
facturing cyanides in England. 

One could go on through the list of other Degussa products and 
find similar arrangements worked out internationally. In 1934, for 
example, Du Pont and Degussa made a series of patent-exchange 
agreements establishing exclusive sales territories for the two com- 
panies for alkaline metals, cyanides, sodium peroxide, formaldehyde, 
ceramic dyes and other products. In 19^5, another range of agree- 
ments was made with the Commercial Solvents Corporation of 
New York* The Du Pont-Dcgussa agreements were followed closely 
by similar arrangements between Degussa and Imperial Chemical 
in England. 

It was one of the anomalies of the occupation of Germany that 
when the production program actually called for processing some 
gold into gold leaf, to be used in decorating Bavarian chinaware for 
export, Degussa had no gold. Our "gold-rush*' vaults in the Reichs- 
bank building at Frankfurt contained several hundred million 
dollars in looted gold not two blocks away from Degussa's main 
oflSce, but Germany's great gold and silver combine had none of 
its own. Late in 1946, a first shipment of some thirty thousand 
dollars* worth of gold bars was flown in from the United States, 
under an arrangement financed by the Export-Import Bank, with 
money furnished by American taxpayers. 

On June 7, 1945, we completed our first look into the affairs of the 


Metallgesellschaft and Degussa, and headed back to the Ruhr. We 
had to look for the beginning of the chain of corporations that had 
served as go-betweens for the metal and chemical industries. The 
first link in this chain was Hcnkel of Dusseldorf, Germany's largest 
producer of detergents, glycerine and industrial fats. It was another 
satellite of the Dresdner Bank. Dr. Hermann Richter of the Dres- 
dner Bank had been chairman of the board of managers since 1942. 

Hcnkel had at least thirty-five important foreign subsidiaries in 
Austria, Czechoslovakia, France, Holland, England, Denmark, 
Poland, Italy, Roumania, Sweden, Switzerland, Yugoslavia and the 
United States. By agreements of long standing between Henkel and 
the British and Dutch international interests of Lever Brothers and 
Unilever Ltd., the British group had the right to use the Henkel 
trade-marks and trade names in the British Empire and in France 
and the French colonies. 

Hcnkel and two of its subsidiaries, Deutsche Hydrierwerke A.G. 
and Bohme Fettchemic, G.m.b.H,, formed a working combination 
in 1932 to set up a dummy holding comp^tny in the LTnited States 
with a working capital of three miUion dollars* The Henkel group 
organized this company, the American Hyalsol Corporation, ostensi- 
bly as a patent-holding company to own its American patents on 
the new cleansing agents, which are the basis of soaplcss lathers 
and latherless soaps. Licenses under these patents were issued to 
American companies working in these new fields. Companies such 
as Procter & Gamble, Du Pont, and the Richards Chemical Com- 
pany, for example, took licenses under the Henkel patents. Just 
in case of future trouble, the German company arranged to have 
an American appear as the sole owner of American HyalsoL 
Actually, when the war did come, this little bit of proteaion did 
not work quite so well as they had hoped. The AHcn Property 
Custodian in 1943 seized American Hyalsol as a German-controlled 
concern, regardless of appearances. But the Custodian's oiBce, too, 
was only partially successful. After the war, we found that what 
the Custodian had seized was only the lizard's tail. 

This came to light when we got hold of the Henkel & Cie. records 
at Diisseldorf. We found that even after Pearl Harbor, a Svnss 
company had been making regular payments to the German com- 


pany on behalf of American Hyalsol under an arrangement worked 

out before the war. The Henkel management had anticipated the 
outbreak of war in 1939 and figured that it would last about six 
years, or until 1945. They had made provision to have patent royalties 
paid in advance by the American licensees to the Swiss company 
for that period. We traced one such transaction in detail. 

The American company had first set up on its books a fictitious 
debt of two million dollars supposed to be due to the Swiss company. 
Then an American, supposed to be the owner of American Hyalsol, 
borrowed three hundred thousand dollars from Procter & Gamble 
as an advance against future payments of royalties which would be- 
come due over die next six years. The purpose of the loan was to 
enable Hyalsol to make a payment against the debt to the Swiss 
company. This three hundred thousand dollars was then trans- 
mitted to Switzerland, ostensibly in part payment on the fictitious 
debt of two million dollars. Throughout the war, therefore, the Swiss 
company could make the regular payments due to Henkel of Diissel- 
dorf while the debt of American Hyalsol Company to Procter & 
Gamble was extinguished bk by bit as royalty payments became due 
from Procter & Gamble to American Hyalsol 

An arrangement of the same kind had evidently been made with 
other American licensees. It worked just as well as actual transfer 
of new funds across the battle lines. But unless, in keeping up the 
deception, the American cloaks falsified their tax liabilities, there 
was nothing illegal about the transaction, and so far as the record 
showed, there was no need for the American licensees to know 
the real purpose of the advances. 

Going over the affairs of the three combines, Henkel, Degussa, and 
Metallgesellschaft, made it clear that the Dresdner Bank had used 
them to keep the bank's band in the affairs of a great many German 
industries, and as nerve centers for operations abroad. In the early 
days of Hitler, financial experts were constantly predicting German 
bankruptcy. Somehow the large bankers had, as a group, pulled 
together an economy of heavy and synthetic industries, gaining "self- 
sufficiency'* for Germany at great expense, yet without the predicted 
financial catastrophe. We decided to sec how the bankers had kept 
them in business. 


Banks of the Rhine 

THE head offices of the central banks were not yet available for 
investigation* Most of them were in the Soviet sector of Berlin, and 
it would take four-power agreement to open them up. But the pre- 
liminary inspection at Frankfurt was enough to indicate a pattern. 
We found that the things Germans have been accustomed to call 
banks fall into about three general classes which arc easy enough to 
tell apart. 

First there was the Rcichsbank. Like the Bank of England, it 
was a curious mixture of government and private affairs, taking 
a global hand in the national finances, carrying out large-scale 
maneuvers like foreign exchange control, manipulating exchange 
rates and tariffs, and financing government ministries, while re- 
maining in other respects a privately run bank. Its many branches 
even provided banking services for depositors. 

Until January 1939, Dr. Hjalmar Schacht headed the Reichsbank. 
At that time he and most of the other directors lost their jobs in an 
argument with Hitler and his ministers over financing the war 
program* According to Schacht, they could not go much further 
with the *'guns, not butter" program, concentrating everything on 
the heavy industries, without going bankrupt. With the war ready to 
start, Hitler differed on this detail and replaced Schacht with Wal- 
ther Funk, who immediately eliminated most of Schacht's top staff 
except Emil Piihl, the acting deputy. Puhl actually ran the Rcichs- 
bank from then on, because Funk knew next to nothing about 

Dr. Schacht had good reason to worry about the Nazi economy as 
a banking proposition; but, like most of the "business'* we had been 


exaraining, the operating machine in Germany often bore little re- 
semblance to the principles of *'sound business management*' that a 
person might learn in the Harvard Business School. When Dr. 
Schacht early in the Nazi regime took on the job of protecting the 
growing war economy from foreign competition, he did very little 
that had not already been done privately by the cartels and combines. 
The innovations that Schacht developed consisted largely of certain 
over-all controls of foreign exchange, so devised that German money 
could have different values for different purposes at the same time. 
In this way, the price of steel inside Germany could be different 
from the prices at which it might be sold in various foreign markets. 
Under the Schacht plan, none of these price ratios need have any 
relation to the domestic or foreign prices of dyestufls or leather 
goods. With controls in force over exchange of marks into foreign 
currencies and vice versa, people expelled from Germany or leaving 
voluntarily could be stripped of most of their holdings by a very 
low rate of exchange into foreign money. Germans living abroad 
could be attracted back to Germany through the promise of ex- 
tremely favorable conversion rates. Some people have said there 
were about forty-five distinct types of German marks used for all 
these purposes. Others have said that the number of types depended 
on how you counted. 

Dr. Schacht simply rang all the changes in using finance as a way 
to determine what kinds of things arc to be produced or sold, and 
by whom. In other countries, certain things were or were not con- 
sidered "sound." An unwritten code determined the persons or 
groups who were allowed to manipulate financial conditions, or 
change the value of money. In the United States, for example, tlie 
Constitution gives to Congress the power to "coin money and regu- 
late the value thereof But orthodox financial doctrines make it 
practically an axiom that the power to regulate the value of money 
consists in saying how much gold is to equal the value of one dollar. 
Any attempt to change this ratio of gold to dollars, if it is not con- 
sidered immoral, is at lease a highly charged political act. On the 
other hand, expansion or contraction of the total amount of money 
effectively in circulation, which in turn has a great deal to do with 
how much of the stuff of life a dollar will buy, is considered the 



proper province of private enterprise. It is as if the Constitution 
had said: **Congress shall have power to coin money and determine 
how much gold equals a dollar, but the value thereof shall be de- 
termined by private enterprise/' 

Dr. Schacht and the Nazis changed these axioms so far as Germany 
was concerned. They lumped together everything that had to do 
with regulating the value of money and recognized no limitation 
on the powers of the government to do whatever it considered 
necessary in managing the currency. In doing this they had the 
backing o£ the big financiers and industrialists. The carrot they 
oflered to selected combines and enterprises took the form of tax 
concessions, government subsidies, legal restrictions on the right of 
stockholders to interfere with "management," and a variety of 
administrative concessions that could be granted by ofBcials to any- 
one who had the proper inside track. 

But the Nazi economic scheme went beyond Dr. Schacht's manip- 
ulation of the financial rules. For these purposes they needed the 
services of institutions like banks; but they could not be too fussy 
about all the rules of "sound investment.'* What the Nazis needed 
was the algebra of the bankers, to translate practically anything into 
business terms; but they wanted no restriction on whatever was to 
be translated. For example, our group of Treasury men, looking into 
the affairs of the Dresdncr Bank, found that in 1939, Oswald Pohl, 
in charge of concentration camps for the SS, had wanted a large 
loan for his "prison industries" firm, the Deutsche Erd und Stein- 
werke G.m.b.H.j or DEST. The Dresdncr Bank had granted one 
loan of five million Reichsmarks to the DEST, which supplied 
cheap, expendable slave labor for unpopular jobs in heavy industry, 
with special attention to the needs of firms whose directors con- 
tributed to the Himmler fund. But Pohl needed more money. For 
this he consulted Emil Puhl of the Reichsbank, who also headed the 
Reichsbank subsidiary, the Golddiskontbank. Puhl found the ob- 
jective a worthy one; but since the charters of both banks would not 
legally allow this type of loan, he arranged to have eight million 
Reichsmarks advanced by the Reich Economic Ministry out of funds 
deposited in the Golddiskontbank. 

The gold-rush teams, tracing the Reichsbank gold, had found still 



further details of these "banking** services when they checked into 

the mixture of SS loot and Reichsbank gold, not only at the Merkers 
mine but in vaults of the Reichsbank branches. Commander Joel 
Fisher had picked up Emil Puhl's assistant, a man named Thorns, 
and had taken him along to identify the hiding places. Thorns ad- 
mitted that he had taken care of the details of an arrangement 
worked out between Oswald Pohl and Emil Puhl, whereby the 
Reichsbank would receive and dispose of SS loot and account to the 
SS for the proceeds. That explained the carefully inventoried bags 
of gold teeth, jewelry, and other valuables shipped from Auschwitz 
and other murder camps and stored with the Reichsbank. Further- 
more, Emil Puhls double position as active head of the Reichsbank 
and as a German member of the private international bank, the 
Bank for International Settlements;, at Basle^ Switzerland, made him 
an ideal "fence'* to dispose of some of the gold after it had been 
melted down into the shape of monetary gold bars. 

When the German armies spread over the rest of Europe, the 
economic arm of the combines was not far behind. As one director 
of the Dresdner Bank wrote in 1943, he had heard from a client a 
**very flattering*' ditty: "Who marches behind the leading tank? 
It is Dr. Rasche of the Dresdner Bank." What a few basic controls 
of finance and the conditions of doing business could do to the 
balance in Germany between heavy and light industry, they could 
also do to the economic pattern of a much larger geographic area. 
Behind the "leading tank" the same controls moved in to turn non- 
German territories into suppliers of raw materials and semifinished 
products, and into decentralized agricultural areas which would 
feed the economic machine centered around German heavy in- 

The job of co-ordinating many of these economic face-lifting 
operations fell to the men of the industrial combines, acting in their 
capacity as directors of the largest central banks and private banks. 
The central banks carried the main load, and the private banking 
partnerships filled in the cracks. The six centralized commercial 
and investment banks can be considered most easily by pairs. Two 
^ere creatures of the government, each of them combining in- 
dustrial and banking activities under one management. The Labor 



Front Bank, the Bank dcr Dcutschen Arbeit, was set up by the 

Nazis. The other, the Reichs-Kredit-Gesellschaft, was a leftover 
from World War L Two were Beriin banks of moderate size, the 
Berliner Handelsgesellschaft and the Commerz und Privat Bank, 
better known as the Commerzbank. The two giants of the Big Six, 
with head offices at Berhn and branches all over Germany, were 
the Dresdner Bank and the Deutsche Bank. Besides these, and 
working under the umbrella provided by the Big Six, were the 
scattering of small but sometimes very important private banking 
partnerships, like the Bankhaus J.H. Stein, and Pferdmcngcs & 
Company of Cologne. Others were Berlin firms such as Merck, 
Finck & Company, Delbriick, Schickler & Company, Hardy & 
Company, or the Deutsche Landerbank. Delbriick, Schickler & 
Company was a subsidiary of Metallgesellschaft. The Deutsche 
Landerbank was a subsidiary of LG. Farben. Other private banks, 
carrying on largely a brokerage and investment biislness, could be 
found in other large cities like Hamburg, Frankfurt, and Munich, 
most of them attached to one or more of the big family trusts or 

The Labor Front Bank was an eye opener for any members of 
our party who might have entertained the illusion that Nazi rule 
was fastened on Germany by ideological mumbo jumbo and mass 
psychology. Postwar Germans of all ranks denied that Nazism 
had attracted them in any way. But the Labor Front and its bank 
had provided jobs and the necessities of life for people who had 
been able to get neither from the lopsided heavy-industry economy 
of the 1920's. Under the Nazis, all members of the Labor Front, 
which included practically all wage earners in Germany, had to 
make regular deposits in the Labor Front Bank* With these funds 
the Labor Front became a pseudo-commercial concern of tre- 
mendous size operating all manner of direct consumer-goods enter- 
prises, like bakeries, food-processing plants, hotels, chain stores, and 
other establishments. These were set up to provide the Labor Front 
membership with basic necessities at prices they could pay. 

This was not a charitable undertaking on the part of the Nazis. 
They were being careful not to kill the goose .that laid their golden 
eggs- "Unrest" like the Krupp strike in 1932 had come from the 


shortage and high prices of consumer goods, which in turn had been 
the result of overconcentration on the development of heavy in- 
dustries. Once the Nazis were in, **privatc enterprise" in the form 
of the heavy-industry combines, out of whose profits came a flood 
of Party funds, was left in control of German industry subject only 
to the channeling activities of Nazi suborganizations Uke the Reichs- 
gruppe Industrie. This meant that the build-up of the heavy in- 
dustries was to continue. 

It became the job of the Labor Front to correct the lack of balance 
as far as possible, without hampering the expansion of heavy in- 
dustry. As a long-term proposition, this would have been absurd. 
How could most of the labor force be employed constantly in the 
heavy industries, and yet enough food and consumer goods be 
secured to satisfy the whole population, including heavy-industry 
workers? Germany was like a man who spends all his income 
making payments on 31 house, a car, a television set, and a hobby 
shop, and has nothing left to buy food. For a time, while the Four- 
Year Plan got Germany on a war footing, the Labor Front*s enter- 
prises helped to stop the grumbling. Then, when the country was 
ready for war, as fast as Nazi armies occupied other countries of 
Europe, a well-organized consumer-goods collection scheme went 
into operation and stocked the Reich with an unprecedented supply 
of every type of consumer goods from apples to zwieback. We saw 
the results in cities like Arnhem, in the Netherlands. Residents told 
us that convoys of German trucks would go through the city, up one 
block, down the other, one truck collecting only sheets, one only 
pillow cases, one only stockings, one just the fur coats. So this 
organized looting would go on through city after city and country 
after country. The Wehrmacht did more than just sack and loot 
individually, as armies have always done. They were dipping system- 
atically into a large reservoir of consumer goods as the only way to 
supply needs of the German population while they continued the 
production of heavy goods for war. 

The other government-owned central bank, the Reichs-Kredit- 
Gesellschaft, or RKG, was a war-preparations organization of a 
different kind. It had been geared up long before the Nazis came 
in. The RKG was owned directly by the government industrial 


combine, VIAG, or United Industrial Enterprises. This combine had 

been set up in 1923 by the German Finance Ministry to operate in- 
dustrial plants that had been built with government funds during 
World War 1. Under the Weimar Republic, VIAG was used by the 
German High Command to try out plans for industrial war mobili- 
zation^ VIAG's financial right arm was the bank, which extended 
large loans so that industrial organizations normally operating in 
other fields like machinery or locomotive-building could take on 
"educational" military orders for aircraft, tanks, and guns. For ex- 
ample, the largest European locomotive builders, Hcnschel & Sohn 
of Kassel, took on the job of building up the Henschel aircraft works, 
Henschel Flugmotorenbau G.m.b.H., with the help of a loan from 
the RKG. Both the Henschel firm and RKG supplied managing 
directors and members of the supervisory board of the aircraft sub- 
sidiary. The RKG had assets in its own right of not much more 
than two hundred million dollars, but in big deals it acted as a 
conduit for government funds. The RKG helped to finance barter 
and trade agreements with countries like Spain and Portugal 
through its barter firm, the Rowak Handelsgesellschaft. This barter 
agency funneled arms and equipment to Franco during the Spanish 
war. The RKG also made political loans to Germany^s allies and 
satellites. After German armies occupied eastern Europe, such 
loans were used to develop natural resources and to integrate 
the economies of the satellite states into the economy of Nazi 
Germany. One example was the Kontinentale Oel A.G., a holding 
company headed by Wilhelm Keppler, established to create a Ger- 
man oil monopoly in eastern and southeastern Europe, including 

The other four big commercial banks were privately owned. Their 

role was to correlate the activities of the big combines which were 
their clients, and on whose boards the banks* officers served. The 
Berliner Handelsgesellschaft and the Commerzbank were the fourth 
and third largest, respectively. The BHG had assets of about two 
hundred and forty million dollars, in the form of directly owned 
investments and business enterprises. The BHG had no branches. 
The Commerzbank had branches here and there throughout Ger- 
many; but neither the BHG nor the Commerzbank was important 



as a spreading chestnut tree. They were the "me, too" outfits of 

the big league. 

The BHG's management group included Hans Burckmeycr of 
Berlin, chairman of the board of Schering A.G., the chemical firm, 
and Duco A.G., recognizable by its name, but supposedly 51 per 
cent controlled by Schering. Others were Herbert L. W. Goring, 
nephew of Hermann; Hans Weltzien of Feldmiihle Papier, 
Schering, Metallgesellschaft and the textile firm, Christian Dierig; 
and Rudolf Eisler of Degussa. The BHG, seconded by repre- 
sentatives of Count von Ballestrem's Silesian coal and steel interests, 
took the major role in running Schering A.G., the up-and-coming 
chemical comhine that always has hoped to step into the shoes 
of LG. Farben. Along with the Commerzbank, BHG had the 
major voice in the Feldmuhle paper works, Europc*s largest pro- 
ducer of paper and newsprint. The power of these two banks to 
grant or withhold supplies of newsprint was not inconsiderable. 

The roster of the Commerzbank included men like Friedrich 
Reinhardt, who until his death was president of the BerHn Chamber 
of Commerce and a director of Schering chemicals and A.E.G. 
electric. Others were Paul Marx of Berlin, director in the Feldmuhle 
works, United Steel, Klockner, and FUck's Mitteldeutsche Stahl- 
werke; and Dr, Theo Goldschmidt of Essen, head of the heavy 
chemicals and coal tar by-products firm, Th. Goldschmidt A.G., also 
part owner of Feldmiihle, and director of the potash firm, Kali- 
Chcmie A.G. 

The Commerzbank, while much larger in total assets than BHG, 
contented itself with supporting roles in important combines like 
Robert Bosch, Schering, A.E.G., United Steel, Feldmuhle paper, and 
Salzdetfurth A.G., the potash firm which in turn controlled Mans- 
feld A.G., the copper trust. Perhaps the best illustration of the sup- 
porting role played by the Commerzbank was its co-operation with 
the other big banks in controlling Germany's fifth largest coal 
combine, Hoesch A.G. of Dortmund in the Ruhr. This family hold- 
ing of the Hoesch family and their relatives, the Springorums, was 
a focal point for agreements and understandings that shaped the 
rest of the business of the Ruhr. Fritz Springorum, director general 
of Hoesch A.G. from 1933 to 1938, was for many years chairman of 


the so-called long-name association, the Association for Safeguarding 
the Common Interests of the Industrialists of the Rhineland and 
Westphalia, an organization with a long and cloudy history as an 
employers' union. 

The other two central banks were the big guns. It would have 
been hard for us to overlook them. On the main business thorough- 
fare of every German town arc the torn and twisted signs that spell 
out '^Deutsche Bank" and *'Dresdner Bank." In Germany alone, 
there were four hundred ninety branches of the Deutsche Bank 
and three hundred sixty-eight branches of the Dresdner Bank, be- 
sides their central offices at Berlin, The Deutsche Bank owned 
directly assets valued at three billion dollars; but this is secondary 
as an indicator of the spread of the Deutsche Bank over German 
finance and industry. More important than the amount of money 
were the offices and directorships held by the bank's officers and 
directors in other German enterprises, and the representation of 
stockholders at stockholders* meetings that came from having large 
blocks of shares on deposit from individual investors all over 
Germany. Some fifty-four officers and directors of the Deutsche 
Bank, during the war years, held a total of seven hundred seven 
positions as officers and directors of other corporations. Two hun- 
dred eighty-one of these were chairmanships or vice-chairmanships 
of boards of directors. Slightly smaller figures would apply equally 
well to the Dresdner Bank with its two and a quarter billion dollars 
of directly controlled assets. 

The strength of the Deutsche and Dresdner Banks came from 
their union of deposit banking with management and investment 
functions, a practice not allowed in the United States. In Germany, 
with securities in all corporations payable to "bearer " most security 
holders deposited their shares with banks for safekeeping; and the 
banks voted the shares entrusted to them. We have no strict Ameri- 
can counterparts of the German banks, whose capital came not from 
deposits of money by the partners but from deposits of stock from 
the whole country. 

The banking operations of the Deutsche Bank might be compared 
with those of the Bank of America in the United States, with its far- 
flung branches and its hand in the finances of giant corporations. 


As an investment house, the Deutsche Bank might be compared 
with }. P. Morgan & Company, with its heavy financial stake in 
important basic industries. There was one notable difference, how- 
ever. The Deutsche Bank^s connection with well-known enterprises 
was a matter of constant notice and attention in Germany, whereas 
the Morgan house in the United States has for years followed a 
policy of public relations in reverse. At the present time in the 
United States there is very little Hnking of the Morgan name with 
the affairs of the much better publicized industrial firms in the 
Morgan portfolio. United States Steel, General Electric, American 
Telephone and Telegraph, International Telephone and Telegraph, 
Commonwealth and Southern, and many others, are familiar house- 
hold words to many people who think of the House of Morgan as 
a feature of a bygone day. A gentlemanly old pirate, J. Pierpont 
Morgan, once wrestled with the Harrimans and other giants of 
railroading and industry, but that was half a century and more ago. 
Not so the Deutsche Bank in Germany. Its name was everywhere 
and only to a slightly lesser extent were the names of its leading 
lights: Hermann J. Abs, Johannes Kiehl, Wolfgang Reuter, Wilhelm 
Zangen, Hermann Schmitz, Jakob Hasslacher, Oswald Roesler, 
Karl Ernst Sippell, Hermann von Siemens, Philip Reemtsma. The 
companies they made their special province were equally well 
known: I.G. Farbenindustrie, Siemens & Halske, VGF rayon, 
Reemtsma cigarettes, Mannesmann steel tube, the two motor com- 
panies, Bayrische Motoren Werke and Daimler-Benz, the DEMAG 
machinery combine, the world's largest building contracting firm, 
Philip Holzmann A.G. 

The Dresdner Bank as a banking house was comparable to the 
Chase National Bank or the National City Bank in the United 
States in the way its officers stayed close to governmental circles 
and kept an eye on international tics. As an investment house, the 
Dresdner Bank might be compared to the American firm of Dillon, 
Read & Company for its specialization in business management with 
the involvement of very little capital. To some extent there may 
be a question whether it was Dresdner Bank which supplied 
management to certain companies or whether it was the manage- 
ment of certain companies which supplied bankers to the Dresdner 



Bank. The only director of LG. Farben who came in from outside 

the firm, for instancCy was Edward Moslcr of the Detitsche Bank. 
Oil the other hand Carl Pfeiffer, an inside man of LG. Farben, 
became a director of the Dresdner Bank. Similar industrial ex- 
perience could be claimed by the chairman, Carl Goetz, and other 
directors like Friedrich Flick, Carl Lindemann, Otto Burckhardt, 
Wilhelm Avieny, Karl Rasche, Emil Meyer, and Helmuth Roehncrt. 

Looking back from the Deutsche and Dresdner Banks through 
their ofBcers and directors to the industries they had managed and 
directed, one could see the skeleton of a whole economic system. 
Aside from the Reichsbank and the three government corporations, 
the rest of the Nazi hierarchies of trade associations, chambers of in- 
dustry and commerce, and industry groups were all simply names for 
special kinds of organizing activities in charge of different members 
of the same set. The government corporations included VIAG, the 
hangover from World War I; the Reichswerk A.G. Hermann 
Goring, medium for armament supplies and reservoir for plunder 
in World War II; and finally the Rustungskontor, billion-dollar 
supply corporation for collecting, stockpiling and allocating scarce 
and strategic materials. To the extent that these corporations and 
the Reichsbank were not run by men from the regular banks and 
industrial combines, they were coordinated by other means. 

This was not simply banker-control of industry. It was a centrally 
controlled and planned industrial economy. Even as early as the 
1920 's, four fifths of German industry was grouped into combines. 
Under the Nazis the number of corporations, and likewise the 
number of different individuals planning and directing the whole 
economy, was simply trimmed down to a much lower figure than 

Between 1933 and 1942, the number of small corporations capital- 
ized at under 500,000 reichsmarks fell from 5453 to 1843 and their 
combined capitalization fell from 815,000,000 to 368,000,000 reichs- 
marks. During the same time, the medium-sized corporations with 
capital not over 5,000,000 reichsmarks stayed at a combined total 
reichsmarks capitalization of 4,500,000,000 though the number of 
corporations fell slightly, from 3016 in 1933 to 2684 in 1942. 

The number of large corporations capitalized at over 5,ooo/x)0 


reichsmarks rose from 679 in 1933 to 877 in 1942, while the total 

number of all corporations was falUng from 9148 to 5404. At the 
same time, the total capitalization of the large corporations rose 
from 15,200,000,000 in 1933 to 24,200,000,000 in 1942, 

Even these figures on total numbers of corporations tell only 
part of the story because actual control, co-ordination of policies, 
and "rationalization*^ within industries and among related industries, 
were all the concern of a clique that included not more than a 
hundred individuals. While these men were most easily identified 
by naming the banks they helped to manage, it was their outstand- 
ing character as a homogeneous group that set them apart. A 
member of the board of the Deutsche Bank, for example, never 
joined the board of directors or the management of an industrial 
concern on a personal whim, as if he were joining a club. The bank 
directors had to give unanimous consent. Once he took the job, 
the director was personally responsible for seeing that the policies 
of the company meshed with the general plans of the bank. 

This co-ordination of industrial economics through strategic 
placing of directors was bolstered further by voting control. The 
Deutsche and Dresdner Banks, having branches throughout Ger- 
many, drew the necessary large blocks of important stocks together 
at Berlin through redeposits from the various branches. As invest- 
ment bankers, the big banks also had another important way of 
shaping the relations of different corporations to one another to 
suit their purposes. New issues of securities originated on behalf 
of one client corporation would be placed in dif^xrent proportions 
With other client concerns instead of being offered to the general 
public. In this way, a series of organizations were built over a period 
of years to serve the actual purpose of planning production, dis- 
tribution and finance in the heavy industries that formed the back- 
bone of the German economy. The way the alliances of banks and 
industries had been organized explains why these types of combines 
and associations turned up most often in the fields of producer 
goods or capital equipment, and seldom or never in the field of 
consumer goods and light industries. The power in I.G. Farben 
and the steel and electrical equipment trusts had to make itself felt 
at points where control of some one thing was enough to keep a great 


many other things under control It was once more the famUiar 
principle of the bottleneck or tollgatc* 

The men who ran the heavy industrial combines like I.G. Farben, 
Mannesmann, United Steel, and Siemens & Halskc may have had 
individual ambitions that sometimes clashed; but far more power- 
ful was the internal discipline that held them together. They kept 
their ties to one another without the heel-clicking, cuff-shooting, 
colored shirts and arm bands that the Nazis bad to use to organize 
the rest of the population. 


The New Hague Convention 

SYNTHETIC textiles held a high place in German autarchy. Ger- 
man production of substitutes for cotton, wool and silk fibers be- 
came a practical monopoly of four large combines: VGF, the 
largest rayon concern in Germany; I.G» Farben, the second largest 
producer, owning six artificial fiber plants; the Phrix Works, largest 
producer of cellulose wool, organized in 1935 as part of the synthetic 
materials program; and the Kunstseide Ring, a group of twelve 
cellulose fiber and by-products companies, also established in 1935 
for the same purpose. The Phrix combine and the Kehrl-controlled 
Ring, as part of the Four- Year Plan, developed a great many proces- 
ses for using waste products like straw and sawdust to make edible 
proteins, yeast, wood sugar and synthetic cattle fodder to make 
up for critical wartime shortages. 

Hans Kehrl, in 1941, became chairman o£ the board of the Phrix 
Works and brought in Baron von Schroder, by that time also an 
SS Brigade leader, to maintain ties with the Ring, with VGF, and 
with the Dutch rayon combine, AKU. The latter connection was 
made easy, not only because of the corporate connections between 
VGF and AKU, but by von Schroder's long and close association 
with the Dutch head of AKU, Fentener van Vlissingen. 

Now we wanted to know more about United Rayon, VGF, and 
in particular about its ties with AKU in the Netherlands* The 
general manager of VGF, Ernst Helmuth Vits, himself a ^'Leader 
of the War Economy," was back in charge of the VGF plants at 
Wuppertal, fifteen miles east of Diisseldorf. Throughout the latter 
years of the war Vits had served as head of the Reich Association 
for Artificial Fibers, the second of several Reichsvereinigungen 


established by Hans Kehrl to regulate and administer the strategic 

industries. The first was the Reich Coal Association^ headed by 
Paul Pleiger* Vits had already admitted to us that the guiding hands 
on his supervisory board in VGF were those of Baron von Schroder, 
Hermann Abs, and Fentener van Viissingen. But he had insisted 
that his company^s properties deserved special protection because 
they were owned by the Dutch AKU. Abs and von Schroder had 
helped to protect them from seizure by the Nazis; and it was up to 
us, he said, to see that his trusteeship of VGF for the Dutch owners 
was not disturbed by the new regulations of the Allied occupying 

We were not at all satisfied about the circumstances under which 
AKU had acquired its supposed ownership and control o£ VGF back 
in 1929; and wc were also curious to learn how AKU had managed 
to maintain this control through twelve years of Nazi rule in Ger- 
many and five years of Nazi occupation of the Netherlands. Back 
in the United States some of us had already had an inkling of 
what we would be up against at The Hague in trying to satisfy such 
curiosity. Dutch AKU held the controlling shares in three of the 
largest rayon firms in the United States: American Enka, North 
American Rayon, and American Bemberg. The Alien Property 
Custodian had proposed to seize these three as firms controlled by 
German VGF; but the Dutch government in exile protested strongly 
to the State Department* The Custodian's office finally agreed to 
let the firms alone until after the war when the true ownership 
could be established. The Dutch agreed, in turn, to make "full 
information" available as soon as they got access to their records 
in the Netherlands. 

Really "full" information, we knew, would have to include in- 
spection of the records of the Amsterdam banks which were sup- 
posed to be holding the majority shares in VGF on behalf of Dutch 
stockholders; and it would also have to include the right to interro- 
gate van Vhssingen about his conduct of the affairs of VGF and 
AKU. Had there been no conflict between the interests of AKU, 
as a Dutch firm, and the activities of VGF as a major cog in the 
German war preparations? In order to retain control of German 
VGF, did AKU not have to make any concessions to German 


policy before the war.' How had AKU been a free agent in its own 

foreign operations, with its biggest block of properties in hock with 
the Nazis.? Since our interrogation of men like von Schnitzler of 
LG. Farben, and our discovery of the mechanical principles of the 
Himrnler fund in von Schroder *s bank, we were becoming skeptical 
of businessmen who asserted that they had been above involvement 
with the Nazis. Granted that AKU was a big and powerful corpora- 
tion, had it been powerful enough to talk back to the Germans? 
Or would it have wanted to if it could? Had not some of its power 
in fact come from a meshing of AKU's foreign interests with 
German plans? 

On June 17, 1945, Desmond MacQuaide, my British executive 
officer, and I left the Ruhr on a brief trip to the Netherlands in 
search of answers to these questions. At Arnhcm the British military 
government officer told us the AKU factories were only moderately 
damaged, but that the directors were away. F. H. Fentener van 
Viissingen, the head of the firm, was at his home in Utrecht. We 
would not be able to see him, however, without first getting per- 
mission from the Netherlands Military Administration at The 

Most people think of The Hague as a symbol of peace among 
sovereign nations, and as a source of humanizing conventions de- 
signed to take the brutality out of war and to make it more whole- 
some. Hollanders think oi The Hague as the *'seat of government'* 
of the Netherlands, in contrast with Amsterdam, the ''capital." This 
distinction testifies to the "live and let live'* relation that exists be- 
tween the bankers of Amsterdam and whatever political regime 
inhabits the old buildings, straight out of a Dumas novel, that make 
up the center of The Hague. 

At The Hague our introduction to the Netherlands Military 
Administration took place under the best possible auspices. At 
dinner in the Hotel des Indes we met Brigadier Babington-Smith, 
head of the SHAEF Financial Branch, who happened to be up 
from Frankfurt on other business. He stayed over until the next day, 
Monday, to go with us on our round of the Dutch officers in charge 
of property matters, and to underline the SHAEF interest in our 


The Dutch officers did not dispute certain facts. The combine, 
AKU, had been formed July 26, 1929 by an agreement between the 
shareholders of the Dutch firm known as Enka and the share- 
holders of the German VGF. Through an exchange of shares the 
new corporation, AKU, became the record owner of 99 per cent of 
the stock of VGF. Through this control of VGF, AKU also got a 
voting control of the VGF subsidiary known as J.P. Bemberg, A.G. 
Immediately before the exchange, the Dutch company had out- 
standing 25,565 shares of common stock. To make the exchange, 
the outstanding common stock was increased by an additional 
28,560 shares, all of which were turned over to the stockholders 
of VGF. At the time of the exchange in 1929, therefore, the German 
shareholders received better than a majority of the voting stock. 
This stock was all in the form of unregistered "bearer" shares; so 
that no record was kept of transfers or of ownership, except by 
German and Dutch banks which were holding them for their 

The question of voting control in 1945 was first a question of 
who owned the majority of these common shares, Germans or 
Netherlanders. If the majority were German-held, the sham "Dutch'* 
ownership of German VGF and of the American companies meant 
nothing. Even if the Dutch could prove that a majority of the 
outstanding shares were being held by Amsterdam banks for Dutch 
citizens, there would still be the possibility that some of these were 
cloaking for Germans; but we were willing to cross that bridge 
later. The Dutch oflScials said it would not be possible to let us go 
to Amsterdam and talk to bankers, let alone examine their books. 
The Netherlands Military Administration would appoint an officer 
to make the necessary inquiries, and he would let us know his 
findings. When this officer made his "report*" a few weeks later, 
there was no bill of particulars. The report simply asserted that the 
investigating officer was satisfied that between 70 per cent and 
75 per ceat of the outstanding shares of AKU were owned by Neth- 
erlands interests. 

In 1929, there had been 54,125 common shares^ of which Germans 

held 28,560. By 1945, the AKU had outstanding some 93,000 com- 
mon shares. We had brought with us evidence of two transactions 


during the German occupation by which the Deutsche Bank had 
acquired 20,000 shares and the Kunstseide Ring 10,000. This meant 
that we knew of 58,560 shares which had at one time or another 
been in German hands; and we had no evidence, as yet, of transfers 
in the other direction. Even so, the investigating officer*s report, still 
without evidence, asked us to believe that at most 30 per cent, or 
27,900 of the 93,000 shares, remained in German hands at the end 
of the occupation. 

There was a further complication. The AKU firm, in addition to 
the usual voting common stock and nonvoting preferred stocky had 
outstanding an additional class of stock in the form of 48 "priority" 
shares. These shares contained an "oligarchic clause,'* which put into 
the hands of their holders the sole right to name candidates for 
positions on the board of directors, and the right to control amend- 
ments to the corporation charter. These 48 shares had been allocated 
in the beginning, 22 to the VGF management, 22 to the Dutch 
group, and the other 4, at the request of VGF, to the British firm of 
Courtaulds, Ltd., which was co-owner with VGF in the firm of 
Glanzstoff-Courtauids G.m.b.H. of Cologne. 

From 1929 onward, the AKU board of directors consisted of 
Fentener van Vlissingen and two other Netherlanders, and six 
Germans, including, throughout the war, Baron von Schroder, 
Hermann Abs, Ernst Viu, and Johannes Kiehl of the Deutsche 
Bank, To counteract this appearance of dc facto German control 
of the management of AKU, the investigation report of the Military 
Administration contended that while there were many ways in 
w^hich the Nazi regime could have upset the control of AKU, 
actually there was no evidence of any case in which the Germans 
acted against the Dutch interests or challenged the authority of 
Mr. van Vlissingen. The report went on to state that Mr. van 
Vlissingen at all times retained physical possession and control of 
all 48 of the priority shares. 

The Military Administration had no reply to other questions we 
raised on the basis of correspondence found by our party in the files 
of VGF at Wuppcrtal. Prior to 1929, North American Rayon and 
American Bemberg had been owned by VGF. After 1929, they were 
recorded as owned by AKU. But in spite of the change in record 


ownership, only routine reports went from the American subsidi- 
aries to AKU at Arnhem, All correspondence on business matters 
and all detailed reports o£ conditions in d^e United States, right up 
to the entry of the United States into the war, went direcdy to 
VGF at Wuppertal; and operating instructions went directly from 
VGF to the subsidiaries in the United States. Still, the Dutch offi- 
cials stoutly maintained that F. H. Fentener van Vlissingcn was 
master of AKU*s fate and captain of its soul. 

On our way back to Germany from our initial trip to The Hague, 
we stopped off in Utrecht to call on Mr. van Vlissingcn. He was 
polite, even cordial in a cool way; but he regretted that under orders 
of the Netherlands Military Administration he could not talk to 
strangers about the affairs of his company except on written instruc- 
tions from The Hague. He said he had, of course, been on the board 
of United Steel in Germany; and he had served as a director of 
two coal-mining subsidiaries of the Flick combine, in addition to 
his work with VGF. From 1933 to 1937 he had been president of 
the International Chamber of Commerce, the organization of which 
he is now treasurer, under the chairmanship of Philip D. Reed of 
General Electric. His international affairs kept him busy in all parts 
of the world. Because of his outstanding position in international 
business activities, Rollins College in Florida had awarded him an 
honorary LL.B. degree in February 1937, He did not care to discuss 
the fact that in July of the same year, Adolf Hitler decorated him 
with the starred Merit Cross; or that on July 5, 1940, after the Dutch 
surrender to the Germans, he became chairman of the Dutch 
National Committee for Economic Collaboration. When we saw 
him on June 18, 1945, he was already heading the commission 
appointed by the Netherlands Military Administration to purge 
collaborationists from the Dutch government and from important 
positions in industry. 

We returned to the Ruhr as puzzled by the official Dutch defini- 
tion of a "collaborationist" as we had been by the Luxembourgers*. 
Somehow the function of a go-between to maintain smoothly work- 
ing financial and economic relations across national boundaries 
during a war is tacitly accepted in the business community as part 
of civilized warfare. During the fighting, these matters are kept 


rather quiet out of deference to people who are being shot or 
bombed and who might become confused if the subject were raised. 

The peculiar power of Switzerland, Sweden, the Netherlands, 
and even much smaller nations as Luxembourg and Lichtcnstein, 
rests on their ability to act as go-betweens for the bigger powers that 
surround them. These countries have been like our own State of 
Delaware, furnishing a nominal legal headquarters for large cor- 
porations whose world-wide activities are controlled from some- 
where else. But Delaware, aside from furnishing a nominal haven 
for "Delaware corporations," also has its Du Pont. The same is true 
in Europe. Sweden has its SKF bearing monopoly and Enskilda 
Bank; Luxembourg has its Arbed; the Netherlands have their AKU 
rayon and Philips electric. These firms are big fish in their own 
right, whatever services they may perform for "foreign" corpora- 
tions. If one of these big fish sets up shop in a small place Uke Dela- 
ware or the Netherlands, it becomes a whale in a fish bowl. Then 
even a casual observer can sec a difference between the "capital" 
and the "seat of government" of the little nation. 

In spite of this lack of balance between political and economic 
forces, when we get into the discussion of postwar reconstruction 
plans, we run into a diplomatic fiction that sovereign nations arc 
sovereign nations. The men who sit around the international con- 
ference table are representing France, the United Kingdom, Bel- 
gium, Holland, Luxembourg. Diplomatic protocol forbids looking 
behind the screen. It would be hard to imagine a newspaper dispatch 
from The Hague beginning, "Representatives of France, the United 
Kingdom, the Societe Gencrale de Belgiquc, AKU rayon, and Arbed 
steel met today to discuss the division of financial aid under the 
European Recovery Program.'* 

After our experiences in Luxembourg and the Netherlands we 
knew some of the ways in which the German economy of the 
Four-Year Plan could easily be carried along into the postwar 
reconstruction of Europe. Solid foundations had been laid in the 
countries bordering on Germany. Here were leading cidzens of the 
"liberated" territories ready to defend the interests of "their" com- 
panies in the operation of strategic industries which the Nazis had 
expanded into bastions of German self-sufficiency. We had already 


seen how the Ruhr became the heart of European heavy industry, 
through concentration of high-cost iron and steel plants. Now we 
were confronted with the coal-hungry synthetic industries in Ger- 
many, built for autarchy, but oflcring to uke on the role of kingpins 
in the reconstruction. 


Electric Eels 

THERE is a sound instinct that leads most people to look skeptical 
when a demand for a business advantage is said to have come 
from the "Government of the Netherlands," or from any of the 
other small ponds in which big fish swim. During the war, the 
counselors of some of the smaller embassies were familiar figures 
in the corridors of the State, Treasury and Justice Departments. Of 
these, few were more active than the counselors of the Dutch 
Embassy on behalf of a certain big fish which was always served 
with sauce Hollandaise, This was the electric lamp and radio tube 
combine, N.V. Philips Gloeilampenfabrieken, or Philips Electric 
Lamp Works, Incorporated, of Eindhoven, Holland — more com- 
monly called Philips. 

Presumably something had happened to the Philips properties in 
the Netherlands during the German occupation; and in 1945 we 
wanted to know what it was. But the tight blockade which the 
Netherlands Military Administration had put up against investi- 
gations of Dutch companies meant that we would have to use less 
direct ways to find out* As a producer of electric lamps Philips was 
only the second largest in continental Europe, with a production 
a little less than half that of the German firm, Osram, which domi- 
nated the European field* The Philips position in related fields such 
as radio sets, radio tubes, radar and X-ray equipment was similar. 
The German opposite numbers were different corporations, though 
parts of the same complex with Osram. German Osram was a jointly 
owned enterprise of Siemens & Halske and A.E.G., the German 
General Electric Company, as was Telcfunkcn, the German radio 


Philips of Eindhoven had for a long time been a cogwheel be- 
tween the German firms and tlieir American partners such as 
General Electric. In 1935, for example^ H. F. van Walsem of Philips 
had written to Clark Minor, head of International General Electric, 
in connection with an international agreement which they were then 
negotiating. As Mr. van Walsem put it: "We have • . . refrained 
from embodying in the present draft the provisions agreed between 
us with regard to the collaboration between your company, Siemens 
and us on minimum selling prices and conditions. It was rather 
difficult to do so and at the same time keep the agreement free from 
conflicts with the American antitrust laws. We are, therefore, con- 
tent to leave this understanding to a gentlemen's agreement between 
you and us, which will, we are sure, be carried out by both of us 
in the spirit in which it was entered into. , . 

When Philips officials found themselves charged with violating 
the American antitrust laws because several such gentlemen's agree- 
ments had come to light they even asked the American courts to 
rule that foreign corporations like Philips, doing business abroad, 
might make agreements among themselves or with American cor- 
porations without fear of A^merican laws. As they put it, "a different 
test must be applied when considering the legality of actions of 
foreign corporations w^hose activities are wholly abroad." This plea 
for special treatment under the laws was unsuccessful; but with its 
protected position in "neutral" territory Philips could be the center 
for understandings and arrangements which the parties could then 
carry out in other territories like the United States without any out- 
ward signs of direct collaboration. Any similarity in the courses of 
action of Dutch, German and American firms would be purely 

If we could not find out direcdy from the Philips headquarters 
at Eindhoven what the company's executives had done under the 
German occupation, we might uncover some of the story from the 
officials and records 06 Siemens and A.E.G. at Berlin. However, this 
would give us only part of the story, as w^e already knew from our 
brushes with refugee Philips officials in the United States during 
the war. They had enjoyed the protection of what amounted to 
diplomatic immunity in Washington; and it had proved impossible 


to piece together a satisfactory picture of Philips operations on both 

Philips executives knew before the war that if the Netherlands 
were invaded, they might have some trouble in keeping control of 
their properties on both sides of the battle lines. They got the Dutch 
government to pass a law permitting Philips to move its head 
offices to Curasao in the Netherlands West Indies, and to leave 
the offices at Eindhoven in the charge of trustees with limited 
powers to carry on the business in the event of occupation. 

The new head office at Curasao controlled directly the Philips 
subsidiaries in the Dutch East Indies, Sweden and Switzerland. It 
established two provisional trusteeships over Philips companies in 
the British Empire and in the rest of the world outside of Axis 
territory. The Midland Bank of London took control over the com- 
panies in the British Empire. The Hartford Bank and Trust Com- 
pany was given control over Philips companies in North and South 
America, Spain and Portugal. If England should be invaded, control 
of the British Empire properties in other parts of the world would 
automatically go to the Hartford trustee. Philips properties in Ger- 
many, Austria, Czechoslovakia and Poland were placed under a 
trusteeship of a German holding company headed by Dr. Karl Mey, 
who had previously served as director of German Osram. 

All these trust agreements were so drawn that the Dutch execu- 
tives of Philips kept the power to control properties and affairs of 
the combine anywhere in the worid, so long as they were outside 
Axis territory and free to act. The German trustee would take over 
wherever the Axis moved in. The trust agreements provided for 
rc-establishment of the prewar holding company setup under its 
original Dutch control, as soon as the war emergency was over. 

This holding company arrangement was good business so far as 
the Philips company was concerned. All of their properties, both in 
United Nations and in Axis territories avoided seizure by alien 
property custodians throughout the war; and none of the branches 
was even blacklisted by any of the belligerents. Every time an 
agency of the United States government began to ask questions 
about the setup through which relations were being continued be- 
tween Philips branches in the United States and other elements of 


the Philips network, especially those in Axis territories, diplomatic 
representations were immediately made to the State Department. 
This sounds at first like a small annoyance which should not have 
prevented government agencies from doing their jobs. But wc 
found diat every time a forma! complaint is lodged with the State 
Department about the activities of even a minor oiEcial of some 
department, the ofiices of two cabinet members and their highest 
ranking subordinates are tied up for days drafting formal letters 
and replies to one another. The offending official soon learns that 
whether he is right or wrong, It is not a good idea to cause ques- 
tions to be raised. In our case, wc told our staff to go ahead and ask 
questions about Philips; but we had to pay for it by helping to 
draft a series of replies from the Attorney General to the Secretary 
of State. 

In effect, the business arrangements of a company like Philips 
got into the diplomatic pipes. All the procedures that normally 
apply to serious questions of intergovernmental relations were 
turned on to stop even the simplest inquiries. The effect was 
something like what happens in slapstick comedy when the plumber 
and the electrician get power lines and water pipes mixed up: frost 
on the radio, Bing Crosby in the bathtub, and bedlam in between. 
A hard-working section chief tries to find out whether a Philips 
official from the Argentine, whose wife is a member of the Falange, 
and whose yacht carries a fascist motto for a name, ought to be 
allowed to enter the United States and have the free run of Philips 
plants turtiing out secret radio equipment for the army. Suddenly 
he finds the State Department behaving as though he had com- 
mitted an act of military aggression against the Netherlands gov- 
ernment in exile. After one or two such experiences, even a very 
good section chief might prefer frost on the radio. 

To make matters more complicated, Philips executives assigned 
to the United States somehow persuaded some colonels and generals 
in Military Intelligence tliat it would be a good idea to give Philips 
permission to ship materials through the blockade into Axis terri- 
tories* The idea was that company officials from our side would be 
able to go with the materials and meet their partners from the 
other side. Then they could bring back information about conditions 


in Axis territory. Some of us suggested that such a pipeline could 

easily be a two-way affair. We wondered what kind of return in- 
formation was valuable enough to exchange for goods and infor- 
mation both. Wc had already showed how it was possible to get 
such things as blueprints of the Eindhoven plants from the files 
of American insurance companies which had handled the re-insur- 
ance on Eindhoven before the war. Other types of business data, 
accurate up to a month or two before Pearl Harbor, could be 
obtained from businessmen already in the United States who had 
been in Holland. What *'up-to-date'* information of a kind available 
to businessmen was worth the price? It seemed likely that what 
came back through the pipeline would be the gossipy chitchat of 
intelligence reports. Most of those we were already receiving from 
Switzerland were less informative than dispatches from the front 
page of the Times, though stamped "secret.'* But the lure of vicarious 
espionage prevailed. When Corwin D. Edwards, chief of the Policy 
Section of the Antitrust Division, disclosed in a monograph for the 
Kilgore Committee early in 1944 what we had been able to piece 
together about the operations of the Philips companies, without 
having dLCcess to "secret'* sources, officials from the Dutch Embassy 
cried that publication of these disclosures had endangered the lives 
of Philips officials in Axis territory. 

While Philips officials played junior G-man with American oiS- 
cers of the chairborne division in the Pentagon, relations of a more 
substantial sort continued among the Philips companies in United 
Nations, neutral and Axis territories. In 1942, Philips executives in 
the United States proposed to transfer the ownership of certain 
patents in Spain, owned by a Spanish Philips company, to other 
Philips interests in United Nations territory. The German-controlled 
Philips company in the Netherlands protested. The Philips officials 
in the United States reversed their decision and even transferred to 
the Spanish company all Spanish patents held by the Curacao head 

In Sweden, the Swedish Philips company and the German radio 
concern, Tclefunken, who were partners in a number of agreements, 

had joined in some parent litigation against other Swedish com- 
panies in 1942. The Philips interests in the United States helped 


out in this joint venture between Swedish Philips and German 
Tclefunken by sending their power of attorney to the Philips in- 
terests in Stockholm to aid in prosecution of the suit* 

In Portugal, the Portuguese subsidiary, acting under the Ameri- 
can trusteeship, got supplies from both the United States and Eng- 
land. At the same time it also received patent applications from 
Eindhoven and filed them in Portugal to obtain patent protection 
in Portugal on behalf of the Netherlands company. The Portuguese 
branch sent to New York reports of agreements between the 
Netherlands company and German industrialists, and it received 
from New York reports o£ Philips activities in the United States 
and Latin America. The Portuguese branch received financial sup- 
port from the Argentine Philips company, which was subject to 
the United States trusteeship; but its accounts were audited by 
accountants of the Netherlands office. 

Philips officials in the Axis-controlled territories did not get quite 
the same run of the roost as did their opposite numbers in neutral 
and United Nations territories. One member of the PhiUps family, 
Frits Phihps, stayed in Eindhoven to manage the properties in Axis 
territories. But the Nazis put officers from the German branches in 
charge of Philips properties in all Axis territories, and also replaced 
many of the Dutch officials at Eindhoven. 

For our purposes, we were not so much concerned with who had 
done what in the Netherlands, as we were in reaching accurate 
conclusions about the working of the system in Germany, and its 
effects in other parts o£ the world. In the case of these electric com- 
panies the German group in the international ring had again been 
playing "king of the mountain,'' But the source of their inonopo]y 
power was not so immediately apparent. In the struggle with France 
over control of the iron and steel industry, the Germans had 
perched on top of a huge coal pile placed in Germany by nature. 
In the struggle for dominance in chemicals and light metals, they 
had perched on a heap of patented technology, placed in Germany 
by the historical accidents of war, the shortage of natural raw 
materials, and the willingness of foreign competitors to trade con- 
trol of technology for protection of their own domestic markets. 
In the field of electrical equipment, lacking undisputed control 


of patents and technology, they had built a "mountain'* of contracts 
and gentlemen's agreements. The electric lamp agreement was only 
one out of many arrangements in electrical equipment. 

In the case of electric lamps, the world's principal manufacturers 
shortly after World War I set up an organization named Phoebus 
in Switzerland. The different companies then transferred to this 
Swiss company their rights to control the particular bits of lamp 
technology which each of them had previously acquired or devel- 
oped. By a pyramid of agreements, many of them individually 
worked out through protracted negotiations, the lamp companies 
built Phoebus into a supranational planning center that could be 
used to control and plan the lamp trade of the world. 

Actually, the opening maneuvers for control of the world electric- 
lamp trade began with a series of internal arrangements in Germany 
at the end of World War I, before Phoebus was born. At that time 
the German lamp market was supplied almost entirely by three 
German manufacturers: Siemens & Halske, A.E.G., and a smaller 
company, the Auergesellschaft, subsidiary of Degussa and better 
known to an earlier generation of Americans as the source of the 
patented *'Weisbach" gas mantle. During World War I, all three 
companies lost their foreign branch factories and their rights abroad 
to the use of the trade-mark "Osram" for electric lamps. Custodians 
of enemy property in the countries with which Germany was at 
war took away these foreign subsidiaries and the rights to the trade- 
mark "Osram/" and turned them over to non-German nationals. 

In 1919 the three German companies created a new company 
known as Osram G.m.b.H., Kommanditgesellschaft, a limited lia- 
bility partnership, for the purpose of combining their forces to 
regain the lost foreign properties and markets. Each partner trans- 
ferred to the new firm, Osram, its own lamp-manufacturing divi- 
sion, its lamp patents, and its technical personnel and files. The 
founding companies agreed to refrain individually from lamp man- 
ufacture. With their combined power they were then able to merge 
into the Osram firm all the remaining independent manufacturers 
of Germany* 

Osram then started to get control of foreign lamp companies. In 
two notable instances, in the cases of the leading American and 


British companies, Osram confined itself to reaching working agree- 
ments. It was not necessary for them to engage in a struggle for 
power. The A.E.G. of Germany was largely controlled by the Ameri- 
can company, General Electric. Similar ties made cousins and 
nephews of all the other interested firms in Germany, Britain and 
the United States. 

Possible "foreign" competition outside of Britain and the United 
States led Osram to formalize the international organization. It was 
in 1924, to reach agreement with large companies such as Philips 
of Eindhoven, that the Osram group proposed the formation in 
Switzerland of Phoebus, with each of the participating companies 
sharing in the ownership and management. The Phoebus setup 
enabled the British, German and American companies to bring in 
some twenty-seven other firms. AH of them agreed to pool their 
interests and to estabhsh quotas for the sale of lamps in world 
markets. The quotas and voting rights in the control of Phoebus 
were fixed by the bargaining positions of the participants at the 
time the organization was formed. Osram became the largest quota 
holder, and had the largest voting rights. 

By July 1929, Osram and General Electric^s subsidiary for foreign 
operations, International General Electric, created a "partnership 
for all time." At the time of the 1929 agreement the American 
ambassador to Germany reported to the State Department that 
Osram, by making General Electric a full partner, had succeeded 
in enlarging its markets and at the same time drawing General 
Electric into the established arrangement of the international elec- 
tric-lamp business. He pointed out that General Electric, on its part, 
not only had made an attractive capital investment and gained 
greater influence in the international lamp business, but also, at one 
sweep, had established a close working connection with all branches 
of the central European electrical industry. 

From 1929 onward, the relations between Osram and Interna- 
tional General Electric developed along lines similar to the working 
arrangements of LG. Farben with its foreign partners. The Ameri- 
can firm, by adhering to quota agreements and arrangements for 
keeping out of marketing areas reserved by the Osram group for 
itself or its other partners, received in return the protection of the 


combined technology and patent rights of the whole group. With 
this power, General Electric could and did beat down any threat- 
ened competition in the American domestic market. 

With the world trade in electric lamps arranged by agreement, 
it became possible for all the Phoebus companies to direct some of 
their technical research toward increasing the ''efficiency" but at the 
same time reducing the lifetime of their lamps* The lamp bulbs 
which we have to replace more and more frequently in our home 
light sockets burn out quickly by international agreement. The two 
biggest worries of lamp manufacturers were the possibility of price- 
cutting and the danger that electric lamps might last too long. The 
General Electric Company persuaded the other Phoebus companies 
to adopt the General Electric "formula" for arriving at die "eco- 
nomic hfe of lamps." Upon the adoption of this formula in 1924, 
General Electric*s European representative wrote home: "This is 
expected to double the business of all parties within five years, 
independendy of all other factors tending to increase it/* Thanks 
to the Phoebus arrangement, an average householder like myself 
now replaces sixty burned-out electric lamps of all shapes and sizes 
in the course of a single calendar year, instead of the fifteen which 
would have been a good average twenty-five years ago. 

As early as 1934 some members of the Phoebus group became 
worried because other members were manufacturing lamps de- 
signed to operate at voltages slighdy higher than those of the 
standard home lighting circuits^ These lamps would last too long 
when operated at normal voltages. A.F. Philips, head of the Dutch 
firm, wrote to Clark Minor of General Electric on January 30, 1934 
that *\ . - there seems to exist in various territories a growing tend- 
ency to supply lamps for higher voltages than in the past, which 
therefore leads to the conclusion that in a great many cases such 
lamps are being underrun. 

"This, you will agree with me, is a very dangerous practice and 
is having a most detrimental influence on the total turnover of the 
Phoebus Parties. Especially with a view to the strongly decreased 
prices in many countries, this may have serious consequences for 
Phoebus and after the very strenuous efforts we made to emerge 
from a period of long-life lamps, it is of the greatest importance 


that we do not sink back into the same mire by paying no attention 
to voltages and supplying lamps that will have a very prolonged 

Mr. Minor wrote back: "I quite agree with your proposal'* 

Whenever this point is raised publicly, v^-hich is seldom, the stock 
answer o£ the producing companies is that they have reduced the 
lifetime of the bulbs to increase their efficiency in the use of electric 
current; so that less current is required to produce the same amount 
of light. Savings to the consumer from short-life bulbs would 
depend on using bulbs of smaller wattage, thereby cutting electric 
bills. It may be that in localities where electricity is expensive 
some consumers have cut down wattage enough to make up the cost 
of buying more bulbs. But no financial benefit comes to the average 
householder who goes on replacing sixty-v/att bulbs with sixty- 
watt bulbs, regardless of whether or not there has been a slight 
increase in candle powder. Besides, in all this close figuring, no con- 
sideration is given to the trouble of frequent replacements, or to the 
fact that the price of bulbs couJd have been reduced to present levels 
without shortening their life. 

A spokesman for General Electric put the case for the short-life 
bulb this way: *'When the life of an incandescent lamp is shortened 
its light output is increased.'' What he did not mention was that 
there are ways of increasing light output without shortening lamp 
life. Technicians long since have discovered new filament materials 
— patented, of course — which could make "high-efBciency" bulbs 
that would last many times the present life of seven hundred and 
fifty hours. The lifetime bulb, like the ^'everlasting safety match,'* 
has stayed on the shelf since the time of its discovery. 

Many more illustrations of practices like these have been spread 
on the record of Senate committees in the United States; and we 
found nothing amazingly new in the cascade of further particulars 
that turned up in Germany* What did become clearer was the range 
of new possibilities that such a union of forces opened up. One of 
the original motives was to establish uniform practices and uniform 
conditions among all producers. If possible, the public should be 
kept from noticing the difference when the product was gradually 
cheapened structurally faster than it was cheapened in price. But 


in any event, even if the public did notice the diflercnce, there 

should be no easy alternative like buying another brand. 

So far the motive could be classed as a "business*' motive, leaving 
aside questions of good or bad. But once the means had been 
devised to present an unbroken front in all dealings with the 
"public/' we had found that — in Germany at least — it was only 
a step to the unbroken front of the Himmler Circle. 

This was what we had to face. We knew that if anyone should 
try to wade into a system of this kind and talk about it in terms 
of supply and demand, competitive marketing by independent 
enterprises, and other notions of a '*frcc economy/' the confusion 
could be practically boundless. Yet even as we completed our find- 
ings, new arrivals were pouring ia from the United States to take 
up jobs with the occupation forces and miUtary government. Their 
fresh faces showed mixed horror at the bomb damage and pity for 
the German civil population. The phrase "just like us" could be 
heard more and more often in the big army mess at the Farben 
building in Frankfurt. As mid-August came on, with its shorter 
days and cooler nights, echoes ot "not Nazis, but businessmen" made 
some of us feel suddenly chilly, and a little old, and a little tired. 


The Lapse of a Policy 


The CaU of the Wild 

"BRITISH Seize Ruhr Industries/* On December i8, 1945, this 
headline appeared on front pages in the United States. British mili- 
tary government had taken over the coal and steel industries. Some 
sixty directors and managers of the coal syndicate, United Steel, 
Good Hope, Mannesmann and Klockner were in jail as part of a 
clean sweep to start the reorganization of Ruhr heavy industry. 

I saw the headlines as I boarded a plane at Chicago, heading for 
Washington to prepare for return to Germany. Since late September 
I had been in the United States to consult with the State and War 
Departments on plans for ending the "concentration of economic 
power" in Germany. Now I had been asked to transfer to the W ar 
Department as director of the Division of Investigation of Cartels 
and External Assets, a new agency set up by General Clay at Berlin 
in October. 

Late Thursday afternoon, December 20, after completing routines 
and forms, I started out of the Pentagon expecting to spend Christ- 
mas in Chicago. General John H. Hilldring, director of the Civil 
Affairs Division, met me in the hallway within sight of the exit. 
''Hello! When are you off?" he said. 

"They tell me they expect to start processing the papers the day 
after Christmas, and I should be able to leave about January 15." 

"The hell you say!" he roared. "Come on into my office.*' And 
to his executive officer: "Colonel, now, what's all this about taking 
three weeks to get Mr. Martin to Berlin? Who's in charge of this 

"I believe Colonel Forney will be handling it, General," said 
Colonel Laux. 


"I want him in here tomorrow morning at seven-thirty to give 
me a full explanation of this proposed delay! General Clay was 
on the phone this morning and asked when Mr. Martin was 


The next afternoon, after a day of racing through corridors be- 
hind ;et-propeljed army officers^ I began forcing my way through 
the crowds that jammed airports, railway stations and every con- 
ceivable mode of transportation. The first "peacetime*' Christmas 
was turning into a nightmare of confusion for everyone. ''Peace on 
Earth" was in every shop window^ whiie men of good will tore 
each other to pieces trying to get on trains. 

At LaGuardia airport, the crew of the C-54 looked glum as they 
prepared to spend Christmas in Newfoundland; but an hour out 
of New York the pilot detected something wrongs and back wc 
went. After one more try, the crew went off for a forty-eight-hour 
leave, and another crew took over. Again we went up, found diffi- 
culties and returned. **No more flights until the day after Christmas'* 
was the announcement. Most of the passengers melted away fast. 
I asked to see the commanding officer, told him of my embarrass- 
ment at seeing two colonels chewed up on my account, and men- 
tioned General Hilldring's ultimatum. 

Two hours later, in a new plane, with Bvc other passengers and 
some mail sacks, we were over Boston and heading for Stephenville, 
Newfoundland. For the first time in a week I had a chance to sit 
still and think about the job ahead. I would be stopping first at 
London for a few days to have some conferences at the British 
Foreign Office, then going to Berlin to report to General Clay. 

The reason for the proposed stop at the Foreign Office was that 
the British contingent at Berlin was already blocking four-power 
agreement on reorganization of the German combines. This made 
no sense in view of the abrupt action the British government had 
just taken to seize the Ruhr industries. True, representatives of the 
new Labor government had reached an understanding with the 
State Department at Washington on the terms of a law that would 
define and prohibit "excessive concentration of economic power" in 
Germany, But Sir Percy Mills was still in charge of economic 
matters for the British at Berlin, in spite of the change of govern- 


mcnts at the July elections. Sir Percy was vetoing proposals of the 
French, Russians and Americans, and even talking back to his own 
Foreign Office. 

It was difficult to see why the British element at Berlin, in spite 
of directives from London, was blocking the deconcentration of 
heavy industry instead of striking a new balance between heavy 
and light industries in Germany. We already knew that certain 
amounts of coal, transportation, communications, power, machinery 
and equipment would be needed to keep chinaware, leather goods, 
textile, food-processing plants, and the like in a good state of repair 
and operation. Then it was necessary to decide what kind of ma- 
terials should be produced for export so as to pay for imports of food 
and raw materials. That should be settled by finding out what kinds 
of products would be easy on coal and transportation and the other 
weak spots. What kinds of things would use domestic raw materials 
instead of imported ones, especially if the imports would be ex- 
pensive? Instead of answering such questions. Sir Percy and his 
staff seemed to assume that German industry should again produce 
whatever it had produced before and during the war. This attitude 
ignored both the facts of war damage and the policies of postwar 

The position assumed by Sir Percy Mills on behalf of his group 
in British military government showed a striking parallel with the 
attitude we had encountered in our own Economics Division back at 
Bushy Park. It was the revival of an argument that was supposed 
to have been settled many months before so far as official American 
policy was concerned. Nothing was being brought up in the new 
arguments over Germany that had not been thoroughly canvassed 
by the executive departments and by congressional committees at 
Washington during the war. In the end, all these discussions and 
arguments had been codified into a coherent plan. President 
Roosevelt had turned to Secretary Hull at a cabinet meeting in 
August T944 to ask whether our government had settled upon 
definite measures for dealing with the cartels and the "excessive 
concentration of economic power" in Germany. Stripped of State 
Department phraseology, Secretary HulPs reply was *'No.** Presi- 
dent Roosevelt then said it was about time the matter was finally 


settled, and he appointed a cabinet committee consisting of the 
Secretaries of State, Treasury, War and Navy to prepare and submit 
an over-all scheme. 

Almost at its first meeting, this cabinet committee split over ways 
of meeting two requirements for a satisfactory settlement of Ger- 
many's future place in Europe, namely: 1) that the European 
economy as a whole must be highly productive; and 2) that Ger- 
many's future place in the European economy must not let Germany 
dominate or control Europe from a military, political, or economic 

The basic heavy industries in otlier parts of Europe had been 
reorganized into a position of dependence upon the industries of 
Germany. Some said that one way to end German control would 
be to uproot the basic heavy industries of Germany, rebuild new 
heavy-industry centers in other parts of Europe, eliminate German 
financial control and management of industries outside of Germany 
and finally let Germany build its economy around agriculture and 
light or consumer-goods industries. German financiers and indus- 
trialists who had been concerned largely with planning and consoli- 
dating their controls over the European economy would have to be 
removed, since it was precisely their kind of economic planning 
which was not wanted* 

Proposals along these lines were prepared in the Treasury Depart- 
ment and put forward by Secretary Morgenthau. Parts of these 
proposals were too drastic and showed too little concern for the 
economic needs of Europe as a whole. Some of the details of the 
Morgenthau Plan leaked to the press. Bedlam broke loose. 

The War Department seized the opposite horn of the dilemma 
and focused attention exclusively on quick German economic re- 
covery, with only perfunctory attention to ''prevention of future 
military activity," or to the economic balance of the rest of Europe. 
Ignoring completely the fine points of how German finance and 
industry had been ab!e to control the entire European economic 
system, these proposals stressed rapid and "efficient*' industrial 
recovery. The War Department prepared a draft of a handbook 
to be issued to military government officers. This proposed hand- 
book followed the view of the Economics Division of the U. S. 


Group Control Council at Bushy Park, leaving out all consideration 
of reform in the basic shape of the German economy. 

President Roosevelt became furious when he saw a copy of the 
proposed War Department guide. He sent a stiff letter to Secretary 
of War Stimson, instructing him to call in all copies and impound 
them, and to find out who had been responsible ''all the way up 
and down the line." The President said, *lt gives me the impres- 
sion that Germany is to be restored just as much as the Netherlands 
or Belgium, and the people of Germany brought back as quickly 
as possible to their pre-war state. . . . There exists a school of 
thought both in London and here which would, in effect, do for 
Germany what this Government did for its own citizens in 1933 
when they were fiat on their backs, I see no reason for starting a 
W.P.A., P.W.A. or a C.CC. for Germany when we go in with our 
Army of Occupation. Too many people here and in England hold 
to the view that the German people as a whole are not responsible 
for what has taken place — that only a few Nazi leaders are re- 
sponsible. That, unfortunately, is not based on fact/* 

Two documents finally settled the controversy. The first was a 
directive issued in April 1945 by the Joint Chiefs of Staff and 
addressed to the American commander in Germany. This document, 
known as JCS 1067^ was kept in a top secret classification until 
October 17, 1945. If it had been released for study, most of the 
wrangling over the Morgenthau Plan would have been unneces- 
sary. Pending final Allied agreements, this directive provided that 
rebuilding of heavy industries, including iron and steel, chemicals, 
nonferrous metals, machine tools, radio and electrical equipment, 
automotive vehicles, heavy machinery and components, should be 
kept to a minimum. Conversion of facilities to the production of 
light consumer goods was to be encouraged. All possible measures 
were to be used to restore transportation services and public utilities, 
repair and construct housing, produce coal, and do anything else 
necessary to prevent starvation, disease or serious unrest among the 
German civilian population. 

The exclusion of Nazis from office and from important positions 
in industry and public life was explicit. 

All members of the Nazi Party who had been more than nominal 


participants, and all active supporters of Nazism or militarism, were 
to be removed from important positions in private enterprises as 
well as in government. No such persons were to be retained in any 
of the listed categories "because of administrative necessity, con- 
venience or expediency." At least it was clear that our forces went 
into Germany with the idea of digging out the members of the 
Himmler Circle and their friends from their cozy quarters in the 
substructure of Europe*s economy. 

The directive also gave special attention to the concentration of 
economic control: 

You will prohibit ail cartels or other private business arrange- 
ments and cartel-like organizations . . . providing for the regula- 
tion of marketing conditions, including production, prices, ex- 
clusive exchange o£ technical information and processes, and 
allocation of sales territories. Such necessary public functions as 
have been discharged by these organizations shall be absorbed as 
rapidly as possible by approved public agencies. 

It is the policy of your government to effect a dispersion of the 
ownership and control of Gernian industry. To assist in carrying 
out this policy you will make a survey of combines and pools, 
mergers, holding companies and interlocking directorates and 
communicate the results, together with recommendations, to your 
government through the Joint Chiefs of Staff. You will endeavor 
to obtain agreement in the Control Council to the making of this 
survey in the other zones of occupation and you will urge the 
coordination of the methods and results of this survey in the 
various zones. 

The second document that settled the controversy over postwar 

policy was agreed upon by the heads of the Big Three at Potsdam 
on August 2, 1945. It was known as the "Potsdam Agreement/* 

The joint conference of the Big Three at Potsdam in July and 
August occurred at a peculiar turning point in European history. 
The British conservative coalition of the war period had been upset 
by the Labor party victory in the July elections. Prime Minister 
Attlee replaced Winston Churchill as British representative midway 
in the Potsdam conference, and Ernest Bevin replaced Anthony 
Eden as Foreign Minister. The British conservative view of German 


industry had been like that held by our War Department in the 

first sessions of the cabinet committee in Washington, Now the 
change of governments at London replaced the top negotiators. But 
the rest of the British delegation at Potsdam was still composed of 
Tories who shuddered at the very thought of upsetting the prewar 
relations between British and German heavy industry. Looking at 
German industry from a quite different point of view, the Soviet 
delegation was preoccupied with the devastation of territories and 
industries in Russia. They wanted, first and foremost, to assure a 
very large amount of reparation from Germany, and were less con- 
cerned about the rest of Europe. 

Thus it was the task of the American delegation to produce an 
agreement that would assure a productive European economic sys- 
tem and redistribute the balance of economic power in Europe so 
that Germany and German industrialists could not resume a domi- 
nant position. The Soviet urge for quick reparations had to be 
curbed. Indiscriminate reparations, including reparations taken 
from current industrial production, might rebuild an undesirable 
concentration of plant capacity in Germany, even while lowering 
the standard of living of the German working population to a 
depression level. On the other hand, the British conservative urge 
for re-enactment of the Diisseldorf Agreement of 1939 had to be 
blocked, too. Retention of the combines and the old German finan- 
cial and industrial arrangements could give the Germans too much 
control even though plant capacity was cut down. 

Politically, the Potsdam Agreement provided that the reorganiza- 
tion of government in Germany should be directed towards *'the 
decentralization of the political structure and the development of 
local responsibility." The same principle was applied to German 
economic institutions. The agreement provided that "at the earliest 
practicable date, the German economy shall be decentralized for the 
purpose of eliminating the present excessive concentration of eco- 
nomic power as exemplified in particular by cartels, syndicates, 
trusts, and other monopolistic arrangements.'* It went on to direct 
that "In organizing the German economy, primary emphasis shall 
be given to the development of agriculture and peaceful industries.** 
The industries that had served as a medium for centralizing power 


in Germany were the ones that had become overdeveloped. By 
throwing the emphasis on a more balanced German economy, the 
new plan could end the consumer-goods shortage which had been 
an incitement to looting of other countries, and make it impossible 
for any clique of elite guardsmen in striped pants to mobilize the 
German population for such a purpose. 

The decentralization of power meant delegating the work of 
organizing production onto a broader base, throwing responsibilities 
to a greater variety of people operating under common policies or 
principles. Germany, during the period of occupation, was to be 
treated as a single economic unit, in the sense that common policies 
were to be cstabhshed, with modifications to suit varying local con- 
ditions. The common policies were to govern: a) mining and indus- 
trial production and allocations; b) agriculture, forestry and fishing; 
c) wages, prices and rationing; d) import and export programs for 
Germany as a whole; e) currency and banking, central taxation and 
customs; f) reparation and removal of industrial war potential; 
g) transportation and communications. 

The Potsdam plan was far from a sweeping "de-industrialization.** 
Measures to build up a productive economy were to be taken im- 
mediately. The occupation authorities were instructed to take steps 
promptly: "a) to effect essential repair of transport; b) to enlarge 
coal production; c) to maximize agricuhural output; and d) to 
effect emergency repair of housing and essential utilities." Payment 
of reparations was to leave enough resources in Germany so that 
the people could live without an American WPA. The German 
people were to be given "the opportunity to prepare for the even- 
tual reconstruction of their life on a democratic and peaceful basis." 

These constructive steps had a double purpose. Far from remov- 
ing machinery from the coal mines and closing them, the plan 
called for the greatest possible coal production. But at the same 
time it would make no sense to enlarge coal production if Germans 
were allowed to reopen too many of their coal-hungry heavy and 
synthetic industries. Repair of the wobbly transport system would 
not mean much if, at the same time, the Germans rebuilt too many 
of the complicated industries that employed cross-shipping of inter- 
mediate products back and forth across the country in the course 


of production. For many similar reasons, the attempt to maintain 
detailed central administration of great networks of interconnected 
companies was discouraged. 

Constructive plans for the control of Germany had to put emphasis 
on transportation and fuel because these were the parts of the 
German economy which the air forces had picked for a quick 
knockout blow. In spite of any popular impression that German 
industry as a whole had been knocked out, these were the two weak 
points. The United States Strategic Bombing Survey had found 
that German industry was in operating condition except for 
coal supplies and transportation. Up till April 1944, the 421,656 
tons of bombs dropped by the Allied strategic air forces did not 
even take the starch out of the German economy* The Survey con- 
cluded: "Neither the direct effects of the attacks, nor the indirect 
effects resulting from the drain on manpower and materials, were 
significant. In 1943, the basic industries were not yet strained by the 
demands of war production and marginal reductions in the output 
of basic materials had no effect on war output. The most that can 
be said is that, without the raids prior to the spring of 1944, the 
basic industries might later on have been somewhat less pressed to 
meet the increased requirements of the armament and reconstruc- 
tion programs." 

In the six months from April to September 1944, another 757,364 
tons of bombs were dropped, with heavy emphasis on transportation 
facilities and oil production and storage installations. These targets 
alone took 336,590 tons with the remaining 420,774 scattered in "area 
bombing" of cities and miscellaneous industrial targets. This bomb- 
ing brought a twO'thirds reduction in the supply of finished oil 
products, and an even greater reduction in aviation gasoline, as 
against the over-all average of one fifth for all industry. 

After September 1944, there was a still greater concentration on 
transportation and oil targets, for a total of 578,261 tons dropped on 
these installations out of the grand total of 830,959 tons for the 
period* This finale brought the so-called "collapse" of the German 
economy. The Bombing Survey concluded that the continued attacks 
on oil had prevented reopening of oil facilities, and that the heavy 
bombing of transportation in the Ruhr and Rhineland had slowed 



production of coke and steel and reduced power production. The 
Survey report added: "It seems clear that the devastating blow to 
basic materials was dealt by the strategic and tactical attacks on 
transportation facilities primarily in and about the Ruhr area." The 
transportation attacks cut off coal shipments. Since Germany was 
far more dependent on coal than most other industrial countries, 
the collapse of coal shipments **had decisive effects which were felt 
throughout the entire economy, even in transportation itself. In Ae 
first quarter of 1945, the shortage of coal set the limit to the opera- 
tion of the German economy, and the lack of transportation facili- 
ties set the limit to the supply of coal." 

The policies agreed upon at Potsdam were not only in line with 
the policies worked out by our own government at Washington, 
but they had another important advantage. Even in the event that 
we could not get the agreement of the other powers on practical 
steps to carry out these policies, still there were constructive moves 
that could be carried out in our own zone. It was untrue, as some 
newspapers had claimed, that in the division of zones we got only 
the scenery, while Britain and France got the industry, and the 
Soviets the breadbasket. Actually, of the eighty-five combines that 
dominated most of German industry, thirty-four had the head office 
and principal place of business in the British zone, nineteen in the 
Soviet zone, five in the French and twenty-seven in the American. 
Furthermore, the greater number for the British zone was offset by 
the fact that most of them were in coal, iron and steel, whereas those 
in our zone covered the greatest variety of industries, and included 
some of those most involved in international cartel deals. 

These facts about the situation in Germany were already part of 
the background I had to consider as our plane crossed the North 
Atlantic. Now that the JCS 1067 directive and the Potsdam Agree- 
ment had settled the American position, I thought the one serious 
obstacle standing in our way would be the attitude of the British. 
But I soon got forewarning of more trouble ahead. In the waiting 
room in Keflavik, Iceland, were two of my colleagues in military 
government, General McSherry, former head of SHAEF G-5 
and now director of die Manpower Division at Berlin, and Fred 


Winant, director of Trade and Commerce and brother of the war- 
time ambassador to England. They were westbound for Christmas 

General McSherry greeted me with the news that I had been 

"aboiished." The Cartels Division had been disbanded the previous 
week. Some functions relating to German assets abroad had been 
transferred to the Finance Division. But a new organization known 
as the Decartelization Branch was to take over the remaining duties 
of the Cartels Division, some of the duties of the Legal Division, 
and all of the LG. Farben Control Office. The new branch in turn, 
along with four other divisions, Industry, Food and Agriculture, 
Trade and Commerce, and Reparations, had been swallowed up by 
the very large Economics Division, headed by Brigadier General 
William H. Draper, Jr. 

Fred Winant added the news that civil service regulations had 
just descended upon the military government organization, so that 
in addition to the usual military red tape, it was now necessary to 
"describe** all jobs in each division and branch according to civil 
service procedures. While Army officers perspired over organization 
charts, job descriptions, and rules for behaving like a lifelong bureau- 
crat, civilian directors were sweating over tables of organization, 
"201 *' personnel files, staff studies, concurrences, passes, travel orders. 
In the meantime efficiency experts from Washington were having 
a field day. 

When the westbound plane left we were still waiting for weather 
clearance from London. I sat down to digest the fiU-in I had just 
been handed on Berlin, and then began to read a New York news- 
paper for Sunday, December 23, that I had picked up at LaGuardia 
but had not yet opened. In a statement datelined Washington, 
December 22, Senator Kilgore charged that certain military govern- 
ment officials were countenancing and even bolstering Nazism in the 
economic and political life of Germany. He went on to say that these 
officials *'take the position that German businessmen are politically 
neutral and that no effort should be made to penalize German indus- 
try or prevent it from recapturing its prewar position in world mar- 
kets, . . . They look forward to resuming commercial relationships 
with a rehabilitated German industry whose leading figures are well- 


known to them, rather than to striking out on new paths of economic 
enterprise.** The Senator mentioned, in particular. General Draper; 
Rufus Wysor, president of RepubUc Steel Corporation and head of 
the Steel Section under General Draper; Frederick L. Devercux, re- 
tired vice-president of an American Telephone & Telegraph sub- 
sidiary and General Draper's deputy; and Colonel Pillsbury, my 
predecessor as control officer for LG. Farben. "Nazi industrial or- 
ganization is not repugnant to them and they have shown every 
disposition to make their peace with it/* I recalled Graeme K. 
Howard's book, America and a New World Order, and our previ- 
ous encounter with him at Bushy Park, 

I had with me a bulletin issued by the Department of State on 
April 2, 1945, making public some documents found in Germany* 
These documents contained plans prepared by the Nazis for a 
future bid for power, based on their industrial holdings and wealth 
concealed abroad. Among other things they had planned to appeal 
to the courts of various countries, through dummiesj who were to 
protest the "unlawful" seizure of industrial plants, patents, and 
other properties by alien property custodians. If these moves failed, 
tliey planned to repurchase the properties through friendly cloaks 
and dummies. 

These were things that could be tested. If Germans had spirited 
away several hundred million dollars, as reported, to furnish a 
nest egg for propaganda campaigns and other operations, we ought 
to be able to detect actual results. 

Another part of the German plan, according to the State Depart- 
ment, was to have GtxmSLii technicians and other experts secure 
positions abroad to circumvent the expected bans on military re- 
search and development in Germany. Such people were to be made 
available at low cost to industrial firms and technical schools in 
foreign countries. It was also thought that German help in the 
construction of modern technical schools and research laboratories 
could be offered on favorable terms, to afford Germans an op- 
portunity for designing and perfecting new weapons. The bulletin 
went on to say that one immediate aim of this German program 
would be to soften up the Allies through a plea for *'fair treatment" 
of Germans; and to secure the removal, as rapidly as possible, of 


Allied control measures. The program was to provide for a rebirth 
of German nationalist doctrines and give the German inner circle 
new bases of operation. 

We arrived at London the afternoon of Christmas Day; and on 
Thursday, December 27, I w^ent with Theodore Achilles, First 
Secretary of the Embassy, to the Foreign Office. We met with 
William Ritchie and two others of the staff of the Honorable John 
Hynd, Chancellor of the Duchy of Lancaster, in charge of German 
occupation affairs. It soon became obvious that someone in our 
Economics Division at Berlin not only disagreed with the official 
Washington policies on cartels and combines, but also had com- 
municated that disagreement to Sir Percy Mills and others in the 
British clement. 

Negotiations had been under way for two months between the 
State Department and the Foreign Office to break the deadlock 
over the "decartelization law" at Berlin. Mr. Achilles and I pressed 
for a firm note from London to Sir Percy Mills. Instead of agreeing, 
Mr. Ritchie told us that we had better get our own lines straight, 
since the position we were taking did not coincide with that held 
by our own Economics Division at Berlin. V/e pointed out that the 
State Department at Washington and not the Economics Division 
at Berlin fixed American official policy; but the British group turned 
this aside and pressed their advantage for ail it was worth. 

Following this setback, Mr. Achilles and I prepared to move to a 
"line of retreat*' that had been suggested by the State Department 
in the event that negotiations threatened to break down. This 
''line of retreat" would be to suggest that, pending agreement on a 
legal definition of "excessive concentration of economic power," 
we should agree to prepare a list of German combines that were in 
any event clear and obvious cases of the type of economic concentra- 
tion that had to be cut out. Actually it was the British group, in the 
end, that suggested some such solution; and I prepared to leave for 
Berlin to undertake the negotiations on this new basis. 

At this point a heavy fog settled on England and the continent, 
holding all air and channel transportation fogbound for several days. 
It was an appropriate comment on our progress to that date. 


The Hollow Squares 

TURNING Berlin into a seedbed of democracy through the in- 
strumentality of a military organization was, to say the least, an 
ambitious project. After my first introduction to the setup as a going 
concern in January 1946, I thought ambition should be made of 
sterner stuff. 

General Clay's Office of Military Government for Germany (U.S.) 
occupied a former Luftwafle headquarters. On Saturday mornings 
a panorama of the individuals and prohlenis that made up the core 
of American military government was assembled in General Clay's 
conference room. Four long, polished tables arranged to form a 
closed hollow square occupied the center of the room. Around this 
hollow square sat the thirty-two men who constituted the top staff 
and who headed the offices and divisions of military government. 
For two hours, General Clay talked with each of us, proceeding 
clockwise around the tablc^ hearing reports of progress or failure 
in four-power negotiations or in the execution of policies in the 
United States zone. 

In another part of the American sector of Berlin was another 
building, this one full of conference rooms, each with its hollow- 
square table. The building, splendid in its park setting, where the 
four powers set up their Allied Control Authority, was a former 
court of commercial justice. It was now the seat of a strange kind of 
international government. At the top of the ACA was the Control 
Council, composed of the four military governors, whose word was 
law. Next was the Co-ordinating Committee, the four deputy 
military governors, who decided what matters to pass along to the 
Control Council for final approvals Then there were the directorates, 


corresponding roughly to the executive departments of a govern- 
ment, and in each case made up of the four directors of the ap- 
propriate division. The directorates, in turn, delegated specific duties 
to various committees and working parties. 

To establish a "democratic" basis for Germany's future, General 
Clay ordered the staff of military government to turn the execution 
of most policies over to "the Germans themselves." We were to 
restrict ourselves to giving advice to the Germans, and "observing" 
the results. If we did not like what we observed, our complaints 
had to be forwarded through military channels. 

Before the occupation was a year old one could begin to observe 
that when the ^'Germans themselves," meaning the top echelons 
of the German administrative agencies, liked the advice they were 
given, they followed it. When they did not like the advice, there were 
difficulties. One could also observe that advice tending toward the 
re-establishment of the old patterns was well liked. Advice that 
smacked of reform was distasteful. 

By drift and by an inner logic of military organization, military 
government was moving from its role as an enforcer of reform 
policies to the role of a trustee or custodian of German "recovery," 
and moving along lines well charted in the habits of past genera- 
tions. Back in the Ruhr, in May 1945, 1 had seen how the command- 
ing general of the corps area would crack the whip because his 
divisions were not getting the streetcars running and the rubble 
cleared fast enough. The sense of being responsible for the welfare 
of the people transcended directives that would have required this 
responsibility to be turned over to Germans, 

Now, at Berhn in 1946, under Genera] Clay's order that re- 
sponsibilities should be turned over to "the Germans themselves," 
it was the reform policies that were being thrown first to German 
administrative bodies. The directors of divisions watching over 
repair of transport, reopening factories, re-establishing telephone 
lines, allocating coal and other scarce materials, clung tightly to the 
programs they had mapped out and offered arguments for delays 
and exceptions^ 

One Saturday morning In February 1946, General Clay discovered 
from the report of the Public Safety Branch that the Transport 



Division had secured exemptions for several thousand Nazis work- 
ing as supervisors on the railway system. The argument was 
that if the Nazis were removed the trains would stop running. 
This report confirmed a charge which had appeared in several 
unfavorable press dispatches from Germany. General Clay's eyes 
snapped an electric spark across the hollow square to the offending 
division director. He ordered all the Nazis removed by the follow- 
ing Wednesday, whether the trains ran or not. 

The Nazis were removed and the trains still ran. But the next 
week it was something else of the same kind; and the next, and the 
next. The net effect was that while parts of the military government 
organized boys* baseball leagues, parent-teacher associations, and 
leagues of women voters, and pasted strips of paper over the 
swastikas in school textbooks, top Nazis and Nazi supporters who 
think democracy ridiculous moved into the key positions in the 
economic and administrative life of Germany, or were never 
thrown out. 

Getting rid of Nazis or finding something useful for ex-Nazis 
to do had been a spectacular proposition ever since the time, shortly 
after V-E Day, when General Eisenhower relieved General Patton 
of his command for saying that the difference between Nazis and 
non-Nazis in GerrjQany was like the difference between Republi- 
cans and Democrats in the United States. But the Nazis were only 
a surface phenomenon compared with the deep-seated and persistent 
mania of the Germans for centralizing audiority and concentrating 
power. That the tnania was not alone a German one may be 
gathered from what happened when the four occupying powers, 
the United States, Britain, France, and Russia, tried to agree on the 
text of a law to end what the Potsdam Agreement called the 
"excessive concentration of economic power'' in Germany, 

The matter had been taken up officially for the first time at the 
second meeting of the Co-ordinating Committee of the Allied 
Control Authority held at Berlin on August 17, 1945, with General 
Clay in the chair. The Co-ordinating Committee had decided as a 
first step to draft a control council law to govern the process of 
economic decentralization. A few days later, at the third meeting on 
August 21, General Clay presented for consideration a draft law 


which would have set up a four-power Commission for Economic 
Decentralization. The commission would be empowered to investi- 
gate and to order the dissolution of enterprises or the termination 
of contracts having a restrictive or monopolistic effect. Under this 
law, contracts or other arrangements in restraint of trade would 
have been declared illegal^ and excessive concentrations of economic 
power in the form of cartels or combines would have been pro- 
hibited. The Co-ordinating Committee could not reach an agree- 
ment and referred this draft to the Economic Directorate for study. 

In the Economic Directorate, the Soviet representatives on Sep- 
tember 12, 1945 offered a counterproposal. The principal difference 
vras that instead of leaving it in the hands of a commission to de- 
termine for itself in each case what constituted excessive con- 
centrations of economic power, this law would have defined large 
concentrations in terms of certain standards of size. The enforcing 
agency would have the right to grant exemptions if there was evi- 
dence that the exemptions were necessary and would not defeat 
the purposes of the law. The Economic Directorate agreed to use 
the Soviet proposal as a basis for discussion and referred the draft 
to a working party for detailed consideration. 

At this point a serious hitch developed. The new text proposed 
to establish definitions of the practices and the types of corpor2tte 
structure that were to be considered illegal. This became known as 
a "mandatory'* type of law. The British objected to a "mandatory" 
law and proposed instead to set up an administrative tribunal with 
power to investigate and make its own rules and regulations. From 
the standpoint of American policy, there were two objections to the 
British "nonmandatory" conception. In the first place, unanimous 
agreement of the four powers would be required to take action in 
any particular case; whereas, if the law itself defined certain 
standards, subject to certain exceptions, unanimous agreement would 
be required to make an exemption. In the second place, a non- 
mandatory law would violate American notions of constitutionality, 
because such legislation would not tell the German businessman 
in advance what was Illegal and what was legal. The enforcing 
agency would make up the rules of the game as it went along. 

During the discussions of the draft law Sir Percy Mills, the British 


member of the Economic Directorate, had made no secret of his 
strong opposition to any law that would do more than establish an 
administrative tribunal, proceeding case by case, and by unanimous 
vote. He had insisted^ of course, that his government agreed with 
the purpose of the law "in principle." At the meeting of the Eco- 
nomic Directorate on September 27, Sir Percy had stated that he 
could not consider the proposed draft as if it were to be a law, 
because only the Legal Directorate could draft a ''law." On Oc- 
tober 5, the Economic Directorate forwarded its draft to the Legal 
Directorate to be rewritten in legal form. 

For the next two weeks it had been anybody*s guess whether the 
higgling over theoretical legal points was a genuine disagreement, 
or whether the proceedings were being deliberately stalled by de- 
laying tactics. Wide differences in the constitutions, statute laws and 
legal practice of the four occupying powers made a month s delay 
in settling a legal point not an unusual occurrence. But in this case, 
had noticed in the cables coming to Washington from Berlin 
that Sir Percy Mills s grounds for objecting shifted from time to 
time. We had noticed also that he was constantly driving for an 
arrangement with the broadest grounds for making exceptions, 
and one requiring a unanimous vote before anything at all could 
be done. This meant that if we hoped to do more than put ink 
marks on paper, the agreement at Berlin, whatever its form, must 
start some action that could be stopped only by unanimous con- 
sent; and not the other way around. 

On October 24 the British objections were the subject of a trans- 
adantic conference by teletype between Berlin and Washington. 
General Clay, along with Ambassador Robert Murphy, his Political 
Adviser; and Charles Fahy, head of the Legal Division; Laird 
Bell, Chicago attorney representing General Draper from the Eco- 
nomics Division; Russell A. Nixon, acting director of the Division 
for Investigation of Cartels and External Assets; and several others 
at Berlin, discussed the question of a "mandatory" as against a 
"nonmandatory" law with representatives of the State Depart- 
ment and other government agencies at Washington. The instruc- 
tions from Washington were clear that the American policy called 
for a "mandatory" law, in the sense that some definition should be 


included to indicate what types of power concentrations were con- 
sidered illegal. Though Berlin should have wide discretion in 
negotiating the precise content of the definition, the enforcing 
agency must not be left with arbitrary power to pick and choose 
what things to hit and what to miss. In view of the objection of 
the British representative, who rejected even the idea of trying 
to work out definitions of "excessive concentration," the State 
Department said it would negotiate directly with the Foreign Office 
in an effort to overcome the British opposition. 

By November 27, 1945 the negotiations at Berlin had reached a 
stalemate in the Co-ordinating Committee. At that time the United 
States, French and Russian representatives were in agreement on a 
draft law that conformed with the statements of United States policy 
and the specific directives from Washington. 

The British veto put the matter temporarily on the shelf. It was 
still there when I arrived at Berlin in January 1946, after the con- 
ferences at the Foreign Office in London. When I took over the 
job at Berlin and read the back files of what had been happening 
since September, it became clear that the deadlock had not been 
due entirely to British opposition. During the negotiations, Mr. 
Bell and others from our Economics Division had continued to 
work out ^^compromises*' with the British and had dealt informally 
with the French and Russian representatives in an effort to get 
them to make compromises which Sir Percy Mills would accept* 
This crosscurrent had gone on even after the teletype conference 
of October 24 in which the official American pohcy was made 
clear* The negotiations had fallen into an almost hopeless muddle 
with the Economic Directorate holding to the British view, and the 
Legal Directorate to the American. There the argument rested. 

As I went over the papers before reopening negotiations, I 
realized that not all of this had been a tempest in a teapot. The 
wrangling, on the surface, was childish; but the future of the big 
combines in the British-held Ruhr lay in the background. Certain 
phrases in the Diisseldorf Agreement of 1939 began to take on a 
new meaning. The Federation of British Industries had felt at 
that time that Hitler's occupation of Czechoslovakia made no dif- 
ference to the soundness of the collaboration program with the 


Reichsgruppe Industrie. Hitler's march had merely "created a 
situation which, while it lasts, has made further progress impossible/* 

Now that British troops held the Ruhr, was "further progress" 
possible? In the Dusseldorf Agreement, the British and German 
groups had said that their objective was *'to ensure that as a result 
of an agreement between their industries unhcaldiy competition 
shall be removed.'' 

Looking back on this agreement after the war, the point was not 
that industries in Britain and Germany had eliminated competition 
among themselves, but that they had done so as part o£ a new "way 
of life/* Private industries were to arrange markets to suit their 
own convenience, and then enlist the help of their governments to 
beat down opposition. A particular enemy was the antitrust legisla- 
tion in the United States, which stood in the way of this new form 
of private world government. As the men at Diisseldorf had put 
it: 'The two organizations realize that in certain cases the ad- 
vantages of agreements between the industries of two countries or 
of a group of countries may be nullified by competmon from the 
industries in some other country that refuses to become a party 
to the agreement. In such circumstances it may be necessary for 
the organizers to obtain the help of their governments and the two 
organizations agree to collaborate in seeking that help." This pro- 
vision had been so evidently aimed at the United States, whose 
industries could not legally join in such a scheme, that the head of 
the British Board of Trade, Mr. Oliver Stanley, was questioned on 
it in the House of Commons on March 21, 1939. His reply had a 
double meaning. He said, 'There is nothing in this agreement in- 
tended to be or that would be in conflict with the interests of 
American industry." 

Now the British element at Berlin, under Sir Percy Mills's direc- 
tion, was plugging for enough exceptions to make possible a revival 
of the German cartels and combines under other names. The argu- 
ment was that the combines in heavy industry should be kept intact 
so as to make it easier to "nationalize'' them. Sir Percy, a hard- 
bitten Tory, was talking like a socialist, as though he favored public 
ownership o£ industry. It was centralization of power he was after. 
Sir Percy was battling to retain certain focal points o£ economic 


power, especially in the Ruhr, to help the British position in in- 
ternational trade. For that, he seemed willing to risk setting the 
German juggernaut loose again. In the background was the need 
to make Britain independent of dollar loans. Before Lend-Lease 
came to the rescue in the early stages of the war, practically all 
British foreign investments had been liquidated to supply the British 
Treasury with foreign exchange, especially dollars, for military 
supplies. Now we could expect some desperate gambles on the 
revival of German power as Britain tried to write the Declaration 
of Independence in reverse English. 

The wranghng and cross-purposes in the American element at 
Berh'n likewise were not just word battles. Soon after I arrived I 
was asked to attend a meeting of all branch and section chiefs of 
the Economics Division, to explain the policies and program of 
my new branch. We met around the hollow table in GGncral Clay's 
conference room. My explanation was greeted with a chorus of 
objections, especially from men like Rufus Wysor, former president 
of Republic Steel Corporation, who was then head of the Steel 
Section in the Industry Branch. These objections were not directed 
merely at my proposed program, but at the whole policy of re- 
organizing the German cartels and combines. All findings of the 
wartime investigations were rejected as though we had learned 
nothing. The argument started from the very beginning. "What's 
wrong with cartels, anyhow?" "Why shouldn't these German 
businessmen run things the way they are used to?'* "What proof 
have you that any of these agreements ever restricted any produc- 
tion?'* "German business is flat on its back. Why bother them with 
all this new stuif ?" 

Given a little time, it is not hard to meet arguments of the 
"What's wrong with that?" variety. The question was how to do 
it at Berlin, in five-minute snatches, when dealing with people who 
felt no hesitation about rejecting official policies, and who claimed 
to have no knowledge of the things on which the official policies 
had been based. For one thing, the documentation to back up the 
policies was in thousands of volumes of testimony, government re- 
ports, and court records in the United States, At Berlin, where we 
were supposed to execute policy, not make it, we had only the 


documents one could carry in a brief case or send by pouch. Mr. 

Oliver Stanley had been right when he told the House of Commons 
in 1939 that there was nothing in the Diisseldorf agreement "that 
would be in conflict with the interests of American industry,'* if 
we were to judge by the men from American industry who staffed 
our Economics Division, 

After the first barrage of questions from General Draper's 
assembled branch and section chiefs, I knew that this was to be a 
job requiring patience. The fact that the gentlemen of our Economics 
Division found it easier to agree with Sir Percy Mills than with the 
policy of the Washington government was not an isolated phe- 
nomenon. We could expect difficulty on every kind of economic 
reform. The director of the Federation of British Industries had 
been quoted in the London Times 011 his return from the Diissel- 
dorf conference of 1939 as saying that "Their talks in Germany were 
conducted in a very friendly spirit, with the great desire on both 
sides to see the other man's point of view.'* I wondered whether 
I could look forward to meetings around the hollow squares in 
Berlin with gentlemen who would show **a great desire to see the 
other man's point of view." 


Reducing Exercises 

THE slogan that Sir Percy Mills used as a battle cry in the argu- 
ments at the Economic Directorate in Berlin was that "great size 
alone is not excessive concentration of economic power/* His fa- 
vorite dictum was that passing a law against certain practices or 
certain types of corporate organizations was the same as convicting 
the German companies of a crime. He was fond of combining the 
two ideas and exploding with the question, "Is it a crime to be big?" 

This kind of argument served very well in four-power negotia- 
tions. Because of language difficulties, it was never possible to 
express complicated thoughts without the greatest difficulty. A short, 
sharp challenge which begged three or four questions was a good 
way to throw any discussion into the wildest confusion. One was 
always forced to remember that four languages were being spoken: 
English, French, Russian and American, Even with perfect transla- 
tion by all the interpreters, there was still too much time lag for 
any complicated rejoinder to be effective. With average translation 
by the interpreters it required constant practice to speak simply 
and to be accurate. 

Before we undertook to prepare an answer to Sir Percy on the 
question of whether or not it was a "crime'* for a German com- 
bine to be too big, we had some matters to get straight within the 
confines of our own military government organization. Differences 
within General Clay's own Economics Division over the interpre- 
tation of the directives were so violent that some of the branch and 
section chiefs had reached the point of incoherence. 

I found that in the months I had been away, my two predeces- 
sors had, in turn, become involved in sharp disagreements with 


General Draper and his staff in the Economics Division. Colonel 
Bernstein had resigned in October 1945, Russell Nixon, who fol- 
lowed Colonel Bernstein as acting director of the Cartels Division, 
had resigned on Decenaber 15, 1945, at the time of the reorganiza- 
tion that made the new Decartelization Branch a part of the Eco- 
nomics Division. 

In one of my first talks with General Draper, I found that the 
investment banker^s view was uppermost. He was fundamentally 
opposed to the idea that the cartels and combines required imme- 
diate reorganization, and was convinced that the ^'experienced Ger- 
man management" had to be retained. He considered Colonel 
Bernstein and Mr* Nixon impetuous, if not ruthless, in their con- 
stant pressure for action to replace the old Nazi and Nazi-support- 
ing managements and to reorganize the big companies. To start on 
a fresh footing, I said that I believed the question of how to go 
about eliminating the cartel system and reorganizing the German 
combines should be accepted as part of the whole economic pro- 
gram. General Draper disagreed. In his view, the war, the bomb- 
ing, the division of Germany into zones, and the fact of the occu- 
pation itself, meant that the cartels as such no longer existed and 
that the combines were "fiat on their backs." There was no need to 
take action in these first years of the occupation beyond enacting 
a law to declare certain practices illegal in the future. The cur- 
rent economic program should be one of economic recovery. Until 
the German economy was in a "reasonable" state of operation, it 
would be unnecessary, and in fact harmful, to undertake "drastic" 
reforms. Therefore a program to eliminate "excessive concentra- 
tion'* was not to be an important part of the immediate plan, 

I countered by citing two specific booby traps that had shown up 
in my first talks with General Drapers branch and section chiefs. 
First, it was expected that a reparations program would take cer- 
tain surplus industrial plants out of Germany. The way in which 
these plants were selected couM have an effect on the shape of the 
future German economy. If the plants belonging to the few inde- 
pendent industrial firms were removed, while those belonging to 
the large combines were left intact, the degree of control left to 
the management of the large combines would be increased. Sec- 


end, the Industry Branch and certain appointed German authori- 
ties were jointly handUng the allocation of coal and other scarce 
raw materials to industrial plants. Under General Clay's order, this 
authority was to be turned over more and more to the Germans. 
The power to allocate was the power to withhold. If materials were 
allocated to plants of the big combines and withheld from plants 
of independent firms, the proportionate power of the combines 
would be increased. If materials were allocated for the revival of 
the heavy industries and withheld from the light industries, the 
resulting economic balance would be the opposite of what we 

The allocation authorities were already withholding materials 
from plants which were expected to be removed as reparations; so 
that even though plants of independents might not be removed for 
some time, the effect of letting combine-owned plants get further 
ahead of the independents in material allocations would be the 
same as actual dismantling and removal. I suggested that the De- 
cartelization Branch should work with the Industry Branch on 
interpretations of the reparation and allocation policies, since re- 
forms of this kind would have to be built in from the beginning. 
They could hardly be carried out at some future date, after Ger- 
many's industrial plant had been rebuilt according to another 
blueprint. General Draper did not concur. He held that if we "de- 
cartelizcd'' the big combines properly, there would be no differ- 
ence between industrial plants owned by the combines and those 
owned by independent firms. There would be no need to "dis- 

At the end of these conversations, I felt like a doctor confronted 
with a patient who weighed three hundred and sixty pounds, who 
was too big for his own good, and who was always stepping on the 
toes of innocent bystanders. General Draper was saying that if I 
"reduced** the patient properly, there would be no need to change 
his weight, shape, or size, or to take any fat off him. Also, once 
we had him properly "reduced," it would not be necessary to take 
any special steps to stop him from tramping on other people. 

Echoing the "recovery first, then reform" idea, the other branches 
of the Economics Division promptly made it clear that they did not 


want advice on the relation between the cartel policy and their par- 
ticular operations. That could wait until later. 

The control of LG. Farben plants, however, and the disposal of 
these facilities, was a requirement that could not wait for a period 
of 'Veform" after Germany had "recovered." By order of the Con- 
trol Council in its Law No* 9, approved in November 1945, the 
I.G. Farben plants had already been seized, the bank accounts im- 
pounded, and the old management ousted. Those plants which were 
to be given up as reparations had to be selected. Plants having 
only a wartime use had to be picked out and dismantled. Plants 
that were to reopen under new management had to have managers. 
Scientific research in the Farben laboratories had to be supervised 
to prevent further work on new military weapons. 

Here again I had something to learn. As Control Officer of LG. 
Farbcnindustrie, despite the language of the Control Councirs 
order I was not actually to carry the responsibility for executing 
Law No. 9 in our zone. I must immediately delegate many functions 
to other branches over which I had no control. I found that the 
Industry Branch was to make the selection of plants to be shipped 
as reparations, dismantled, or reopened, and to pick the persons 
"quahfied" to operate the reopened plants. Another branch was to 
control scientific research. Still another branch had custody of the 
impounded funds and responsibility for preventing unauthorized 
dissipation of the assets. By military theory all responsibility rested 
on the shoulders of the commanding general, and everyone else was 
an adviser only. Stripped of special military language, then, my job 
was to sit with the French, British and Soviet control officers and 
try to arrange a plan for fmal disposition of the I.G. Farben proper- 
tics. Meanwhile, with the help of a small staff, I was simply to 
observe what the Germans and the other branches of military gov- 
ernment did with the property. 

In the same way, my over-all Job as head of the Decartelization 
Branch was to try to get British, French and Soviet representatives 
to agree on the text of a law to prohibit the "excessive concentra- 
tion of economic power" in Germany, while assembling a staff of 
lawyers, economists and investigators to make recommendations 
through General Draper to General Clay on any steps we might 


think necessary. On matters of initiating reforms wc were to follow 

the military rule that the man at the top took all tlie blame and had 
all the say. The written orders from Washington meant whatever 
the commanding general at each level said they meant. What he said, 
in turn, depended on what his staff furnished him as proposals to 
be approved or rejected. But when it came to criticism of orders 
from Washington, wc discovered that army officers were protected 
by the "civilian'* rights of "free speech'* instead of being subject to 
the military formula that "orders is orders." 

We soon found that the decartelization law negotiations were 
not the only ones in which violent divisions of opinion existed 
within the American headquarters. The same kind of thing had 
been happening to the arguments over the economic unification of 
Germany and the level of heavy industrial production. The physi- 
cal plants of German industry, except for spectacular but superficial 
damage to the buildings, had come through the bombing and 
fighting very largely intact. After the fighting it was lack of 
transportation and coal that kept the plants closed. The United 
States Strategic Bombing Survey showed that the temporary stop- 
ping of production was quite different from "destruction." Actual 
destruction of physical plants had amounted to some 15 or 20 per 
cent of the expanded wartime capacity. The rest of the machines and 
equipment could operate if they had coal to burn and transport to 
bring raw materials. 

Under the Potsdam Agreement as much of the coal as possible 
was to be fed into light or consumer-goods industries. These were 
the ones to be encouraged in postwar Germany, and the ones of 
which Germany had few enough to begin with. On the other hand, 
there was the heavy-industry concentration of the Ruhr that the 
industrialists of the 1920's had deliberately cut off from its former 
balance with the heavy industrial areas of French Lorraine. The 
proposal, then, was to take some of the heavy-industry plants out 
of the Ruhr, where they could not hope to have coal and iron ore 
for years to come. This excess equipment was to be used to restore 
heavy-industry areas in France, Belgium and other countries which 
had been the victims in Germany*s economic war. The principle 
was clear, but the details had to be worked out. 


The first steps in working out the details were the four-power 

negotiations that started in the Economic Directorate in the fall of 
1945 and concluded with the Level of Industry Agreement of 
March 29, 1946, The path to this agreement was not strait and 
narrow^ The American and British elements were working toward 
a restoration of the Ruhr as a center of economic power. Both ele- 
ments brushed aside the German labor unions and joined forces 
with the industrialists. The Soviets preferred the political arena 
where numbers count and they might hope to gain support from 
organized labor, which was being so pointedly ignored by the 
Americans and British. The failure of the American and British 
elements to make any overtures to middle-of-the-road labor groups 
is still one of the unexplained phenomena of the occupation. 

The French position was fairly clear. Even though the French 
had not themselves been a party to the Potsdam negotiations, they 
had a great deal to gain and nothing to lose by a straightforward 
execution of the part of the Potsdam Agreement that dealt with 
reparations and the level of German industry. 

The British position was a little more complicated. The British 
held the Ruhr. At home Britain was short in raw-steel capacity. 
If they all owed steel production to rise in France and remain low 
in Germany, British experts felt that their chances of getting their 
hands on raw steel for the British processing industries would be 
remote. Whoever has raw steel — in this case it would be the 
French — wants to process it. If the British were to get new sup- 
plies of raw steel for their processing industries, they would have 
to build steel plants in Britain; or, since they were in control of 
the Ruhr, they could hold out for enough surplus steel capacity to 
supply their additional requirements, as well as German needs. Sir 
Percy Mills plugged for two things: a high rate of steel production, 
and authority for the zone commander, in this case the British com- 
mander, to interpret and carry out agreed four-power policies. There 
were to be no "internationaF' commissions or controls if they could 
be avoided. International agreements on the level of generalities, 
yes. But international interpretation and applications, no. 

The Soviet position was peculiar in another direction. The Rus- 
sians wanted reparations out of Germany, cither in the form of in- 


dustrial plants or of finished products. They began packing and 
shipping factories almost as soon as the shooting stopped in 1945. 
But then trouble developed. Many of the factories proved useless in 
their new setting, which was an economic desert. The scorched- 
earth policy had left none of the satellite industries that are needed 
to supply special equipment and services to a big plant. A large part 
of I.G. Farben*s *Xcuna works,'* the synthetic-gasoline plant near 
Leipzig, was packed up and shipped eastward in August 1945. Be- 
fore many months, however, the carloads of equipment from Leuna 
were being shipped back again and put into operation on the orig- 
inal site. 

This situation led to a sharp disagreement. The Russians at- 
tempted to designate some plants as reparations, but operate them 
in their original location in Germany. The other powers held this 
to be a violation of the reparations policy. The reason given at first 
was that taking ''reparations from current production" would leave 
a dangerously large number of industrial plants inside Germany. 
That it was a mistake to leave the Germans with a large industrial 
potential to pay reparations had been one of the great lessons of the 
other war. But by the end of 1946, the cry against reparations from 
current production was to be based not so much on the danger of 
industrial potential in Germany, as on the fact that it would subtract 
from the total goods available to the German population. That 
would force the United States and Britain to import materials into 
Germany at their own expense to help support the Germans. 

Another point where Russian policy crossed with the others, and 
with British policy in particular, was in the matter of international 
control. The British and Russian forces had their respective rea- 
sons for wanting to retain independent authority to interpret agreed 
policy in their own zone of occupation. But, for other purposes, 
both also wanted "'unification.'^ A feud was inevitable over what 
kind of unification. The Russians wanted the political unification of 
a central German government. The western powers preferred the 
economic unification of industry and trade. 

In the beginning, in 1945, the lines had not yet been drawn on 
the issue of "economic unification,'* which later became the chief 
bone of contention. It was only after the level of industry agree- 



ment that the Soviets began to insist they could not agree to make 
Germany one large free-trade area, without a corresponding agree- 
ment on a government for the whole of Germany; and the western 
powers said they could not agree to discuss a central government 
until trade barriers had been removed and Germany was function- 
ing as a single economy. 

The four-power arguments in the early stages of the occupa- 
tion, beginning in the summer of 1945, left real recovery and re- 
form on the sidelines. To get the political support of large land- 
holders the occupying powers might abandon land reforms needed 
for agricultural recovery. To get the support of established industrial- 
ists, coal might be given to the politically most powerful. For the 
same reason, licenses to engage in business might be so allotted as to 
restrict new production, instead of expediting it. We knew that 
Germany was almost bound sooner or later to become a football. 
Once it did, recovery would follow the same lines as in the past. 
Therefore it was especially important to keep the issues clear; 
but the Americans at Berlin, especially on the economic side, 
dropped the ball, fumbled, dropped it again. Everything got very 

The Potsdam Agreement had been in effect for two months 
when Dr. Don Humphrey, ad viser in the Economics Division, cir- 
culated a memorandum dated October 15, 1945 in which he pro- 
posed that the intentions of the Potsdam directive should he re- 
versed, that coal should be kept and used industrially in Germany 
instead of being furnished to countries like France, and that the 
greatest emphasis in German production should be on highly man- 
ufactured items like machinery. He said: "It is recognized that the 
claims of the nations importing coal are persuasive, and that for the 
moment we are operating under a directive, [Italics added.] Never- 
theless, the point must be driven home that this decision is tanta- 
mount to subsidizing the coal-importing nations from the German 
economy, thereby forcing us, the Americans, to subsidize the Ger- 
man economy. Coal is, and during the next year will remain, the 
factor limiting production. It should therefore be used in the man- 
ner best calculated to limit our liabihties — that is, to balance Ger- 
many s foreign trade. This means that at the earliest possible mo- 


ment, coal should be converted into the most valuable form for 
export. This probably is machinery." 

The "moment" during which "we" were operating under the 
Potsdam directive soon passed, and in a short time it was fashion- 
able to say that the economic decisions at Potsdam had "proven 
unworkable." Two years later, the press was reporting a remark by 
Dr. Humphrey at a meeting in Paris to the effect that the Potsdam 
Agreement was a "dead duck." 

The "duck" had begun life as a very sick chicken. Early in the 
fall of 1945, even before Dr. Humphrey s memorandum, Dr. Calvin 
B. Hoover, Duke University economist, had been hired as an 
adviser by the Economics Division at Berlin. His assignment was 
to prepare specific proposals for reducing German heavy industry 
and building up the light industries. His report was to be used as a 
basis for establishing the American position on details during the 
four-power discussions then in progress on the level of German 

The report by Dr. Calvin Hoover, instead of showing how the 
economic readjustments required by the Potsdam Agreement could 
be carried out, argued that they were impossible. Looking at Ger- 
many alone, and largely disregarding effects on other European 
countries, the Calvin Hoover report urged restoration of Germany 
along the lines of its prewar and wartime economy, with a high 
degree of emphasis on heavy industry and the retention of coal 
and semifinished products inside Germany. Proposed coal exports 
to coal-consuming countries like Belgium and France were to be 
cut down and iron and steel production schedules in Germany 
boosted. The theory was that this would be the quickest way to get 
valuable exports out of Germany to exchange for food and raw 
material imports, thereby limiting American expenditures. 

At that time no Marshall Plan w^as being discussed. Therefore, 
the presumption apparently was that delayed recovery in other 
parts of Europe would not add to the burdens of the Am.erican tax- 
payer, whereas the slightest delay in German recovery would en- 
tail added costs to be paid by the United States. 

The United States ultimately took it on the chin both ways. The 
coal that was kept in Germany was allocated largely to rehabilita- 


tion o£ the heavy industries instead of producing exportable goods. 

As late as 1947 we were still finding glass factories and other light- 
industry establishments which were all set to produce for export, 
but which were still shut down for lack of coal. Coal and machin- 
ery, meanwhile, were being poured into "rehabilitation*' of heavy- 
industry plants. The export program lagged behind estimates, re- 
quiring more and more dollars in food and raw materials from the 
United States. Later, when the Marshall Plan came along, the extra 
costs of delayed recovery in the other European countries which 
had been deprived of German coal also fell on the backs of Ameri- 
can taxpayers. 

When the Level of Industry Agreement was finally reached in 
March 1946, the British appeared to have lost their argument for 
a very large German iron and steel capacity. Germany was allowed 
to retain enough plants to produce 7,500,000 tons per year or about 
a third of the wartime output; but actual production was not to 
exceed 5,800,000 tons in any year without approval of the Control 
Council However, even with the agreement signed, the argument 
did not stop. By July 1947, though the steel industry of the Ruhr 
was producing at the actual rate of about 2,500,000 tons a year, the 
United States and Britain agreed to raise the ceiling on production 
from the four-power agreed figure of 5,800,000 tons to a new figure 
of 10,700,000 tons per year. French protest held up the conclusion 
of this new agreement until three-power negotiations were under- 
taken in London, but finally the French had to capitulate. They got 
only the promise of a litde more coal from Germany in the future, 
after German production had increased. 

Throughout the time from March 1946 to the new jump in per- 
missible steel production in this London agreement of 1947, a 
stream of American "experts'' was brought to Germany on short 
visits to see the German economy at first hand, under the guidance 
of the Economics Division. The reports of these visitors echoed the 
conclusion that German recovery demanded greatly increased em- 
phasis on heavy industries. In their reports the visitors frequently 
referred to the "proven impossibility" of something which no one 
had yet tried to do. With equal frequency they reported the "mount- 
ing chaos" that was supposed to have resulted from the ruthless 


"Morgenthau Plan of deindustrialization.'" Other damage was al- 
leged to have been done by drastic reforms and alterations that 
were never actually imposed upon the German economy. It became 
customary to refer to the urgent necessity for "reversing the former 
policy of destroying German industries." 

These comments on Germany became standard fare in the United 
States within a year after the occupation began. At this point no 
steps had been taken to carry out an "antitrust" policy anywhere 
in our zone of Germany except for two cases: the seizure of plants 
and assets of LG. Farbenindustric; and, in February 1946, the 
appointment of a trustee to administer the coal wholesaling firms 
in our zone that had belonged to the big Ruhr collieries. Yet the 
impression was now being conveyed to the American public that 
the lag in Germany's recovery was to be ascribed not to German 
indifference or apathy, or to deliberate sabotage of recovery by the 
old management groups, evidence of which had been steadily ac- 
cumulating, but to the decartelization program and the removal of 
Nazis from high positions in business management* With Heinrich 
Dinkelbach of United Steel running the iron and steel industry of 
the British zone; with Ernst Helmuth Vits of VGF running the 
synthetic textile program; with Hermann J. Abs of the Deutsche 
Bank moving up fast as a "financial adviser"; with Hugo Stinnes 
and the men of the coal syndicate being groomed for the expected 
bizonal coal authority; and with all the others **back again and 
better than ever,** it was hard to discover which important Nazis 
were supposed to be missing. 

Public impressions of what was happening in Germany changed 
swiftly from the time when reforms had to be delayed in the interest 
of recovery to the time when delayed recovery was blamed on the 
drastic reforms. Looking back, it is hard to fix the particular mo- 
ment at which the transformation took place. If the German heavy 
industrial "fat man" had actually been reduced, when and how was 
it done? 



WHILE the Economics Division was beginning to complain of 
impediments to German recovery, any such remarks aimed in our 
direction were gratuitous. For a long time, as far as German com- 
bines were concerned, we had no authority to do more than plan 
steps for the future. When our plans were finaUy worked out, they 
took account of the need for a sound economic recovery and were 
approved in principle by General Clay. The only reorganization 
which had been sanctioned by a four-power agreement was that of 
I.G. Farben. While we waited for four-power agreement on a broad 
program of reorganization for other combines, or for General Clay s 
permission to proceed alone in our own zone^ we concentrated our 
efforts on the Farben plants. The idea was to use the reorganization 
of this one giant as a proving ground for ways to handle the others; 
but eventually it stood out as the only industrial reorganization that 
our military government attempted — a dance of the skeletons in the 
army's "greatest show on earth." 

Colonel Pillsbury, my predecessor as control officer for I.G. Far- 
ben, had established a Control Office at Griesheim, near Frankfurt, 
with a staff of thirty officers. To get ready for the first meeting of 
the four-power Committee of Control Officers in the last of Janu- 
ary 1946, General Draper and I agreed that we should ask for a 
report from our LG. Farben Control Office on the condition of 
Farben plants and assets in our zone, and on what, if anything, 
had already been done since the seizure of the properties on July 5, 
1945. Several officers came up from Griesheim to prepare the report. 
We discussed the project first in General Draper's office before they 
went off with their papers and figures to write the story, I noticed 


that Senator Kilgore's blast in the press on December 23, 1945 was 
still fresh in the minds of General Draper and the men from Gries- 
heim. They were eager to make a good showing in the number of 
plants made available for reparations, or destroyed as primary war 
plants, and in the controls that were being maintained over the 
properties that remained. 

We presented the finished report to the three other I.G. Farben 
control officers at the first meeting of the four-power committee, 
and furnished copies to the Economic Directorate. We also pre- 
sented a tentative plan already prepared at Griesheim as a basis 
for the reorganization of the I.G, Farben complex into separate 
economic units. 

Much of the report became inaccurate with the passage of time 
because it had been written in optimistic double meanings. Plants 
were listed as "declared available for reparations,** which sounded 
like an accomplishment. Later many plants were withdrawn 
by the Industry Branch pending "further study" of Germany's 
needs, or they were included in General Clay's blanket order to halt 
reparations deliveries until the Russians agreed to economic unifica- 
tion of Germany. Plants listed "to be destroyed as war plants*' were 
actually treated much less drastically. Parts which could be con- 
verted to some other use were retained and reopened. At Gendorf, 
for example, was a poison-gas plant which had used slave labor from 
Auschwitz and in turn had supplied both gas and candidates for 
the Auschwitz gas chambers. Part of the Gendorf complex was a 
plant producing ethylene glycol, an intermediate product in the 
manufacture of poison gas, but also used as an antifreeze. This 
was retained for peacetime use. 

So with other parts of the war-built plants. Reinforced concrete 
bomb-resistant buildings which could serve as warehouses were 
saved. SliclWoading equipment that could be adapted to some other 
use was kept. Only the few buildings and the equipment that 
could not possibly be turned to some other purpose was blown up 
in a spectacular demonstration of our ''determination to extirpate 
the German war machine, root and branch." 

While much of this was explained as only good common sense 
— saving as much as possible from the wreckage — we found that 



more often than not a **bargaln-basement" mentality was dictating 
the action. The German cellar was becoming cluttered with things 
that could be had cheaply and might come in handy some day. 

On one of my first return trips to the Ruhr in February 1946, 
I found that an armor-plate mill at Haspe, designed to roll the 
heaviest sections, was being prepared with all its slow and pon- 
derous bulk to roll thin sheets for transformers or for tin-plating. 
I knew from my own work in steel plants that this was a far cry 
from the efRciency of a high-speed continuous strip mill — which 
can not be converted, by the simple turn of a screw, into an armor- 
plate mill. 

Without wasting time in argument with the industrial brains 
who were pawing through the German junk-pile looking for sal- 
vage, the four-power I.G. Farben Committee set up a working 
party to study the entire maze of Farben plants in all four zones. 
The working party was to find out which plants or groups of 
plants could be operated economically as separate units. The raw 
materials must be either self-contained in the unit or available on 
the open market; and the products must be salable. With those in- 
structions, the working party got busy, and by January, 1947, we 
had four-power agreement designating twenty-one separate manu- 
facturing units and seven mining and extractive units in the United 
States zone, employing over eighteen thousand workers, out of the 
complex of nonwar plants that had employed about thirty-five thou- 
sand. Within another six months, practically all the remaining plants 
had been grouped into a total of fifty separately operating units. 
At the same time, similar units were being carved out of the Far- 
ben properties in the other three zones. 

We designated other working parties to line up questions on 
patents and trade-marks, on LG. Farbcn*s former stockholding in 
other firms, on international and domestic cartel agreements, and 
on the formerly centralized selling and accounting arrangements. 
We reached agreement on the American proposal that in each zone, 
pending final decisions establishing the new ownership of the sep- 
arate units, the control officer might designate a trustee for each 
unit and transfer the legal ownership of the properties from the 
Allied Control Council to this trustee. 


We knew these first steps had a great weakness. They left the 
physical and economic basis of the old I.G. Farben empire intact, 
except for the removal of common financing and selling, central- 
ized accounting, and centralized direction from a single board of 
managers and supervisors. If German trustees could be found to 
operate the plants independendy in good faith, and not under secret 
agreements to "co-ordinate" their activities through the ousted man- 
agement, there was a chance that plant groups which formerly had 
concentrated on particular products or on intermediate raw mate- 
rials would branch out and manufacture whatever products they 
could sell. In that way the old interdependence of plants and cross- 
shipping of intermediate products would be replaced by a new pat- 
tern of independent and possibly competing chemical industries. 
Such independent industries would be easier for single German 
states to control or to take over. But if the new trustees were stooges 
and stand-ins for the old guard, the accomplishments of this reor- 
ganization would be nil because the old tics would remain intact. 

We knew that those of the old management who were not in 
jail still met secretly but regularly at Frankfurt and other places in 
the western zones and planned for the day when they could once 
more weave LG. Farben back together. At one time the manager 
installed by the Industry Branch to run the big Farben plant at 
Hochst reported work stoppages and other production troubles 
which he blamed on our German custodian. Upon investigation we 
found that the manager himself was attending meetings of the 
ousted management in an abandoned store in Frankfurt and was 
building a bad production record to discredit the new setup. When 
I ordered the manager removed from the plant, the Industry Branch 
complained that we had taken away an experienced and indis- 
pensable operator. He stayed fired, however, and the plant contin- 
ued to operate; but the ex-manager kept turning up at meetings 
of the chemical association for Greater Hesse, where the other 
German industriahsts accorded him as much respect as formerly. 
There was no law to touch him or the association. 

In the first year of the reorganization, the initial thirty "independ- 
ent units*' in the United States zone were operating on the whole 
successfully and some were even producing more than ever before. 


in addition to diversifying their output. Since the shortage of trans- 
portation would have made it diificuk for these plants to operate 
in the old way, as interdependent units, wc felt at least that our 
test-pattern was vindicated from the "recovery'' side, however dubi- 
ous and experimental it might be as a completed 'Vcform.'* 

While we were proceeding during 1946 with the LG. Farben 
test, and also negotiating for the passage of a cartel and combine 
law, the Finance Division, headed by Jack Bennett of the Treasury 
Department, and later by Theodore H. Ball, also of the Treasury, 
commenced the reorganization of the big commercial banks. They 
ordered the German minister-president of each Land (state) govern- 
ment to appoint an independent custodian for the local assets and 
business of the branches of the Deutsche, Dresdner, and Commerz 
banks. The custodian was to pay no attention to former stockhold- 
ers and managers of the banks and he was to give the new institu- 
tion a new name having no similarity to the old one. It is interesting 
to note, however, that the present letterhead of the *'Hessische Bank" 
has under it in dark letters, "formerly Deutsche Bank,'' and the 
"formerly** is so small as to be almost illegible. 

Later a group corresponding to the Board of Governors of the 
Federal Reserve System was set up in the western zones, consist- 
ing of one representative from each of the eleven Lander and one 
chairman, to operate a "Federal Reserve Bank" known as the Bank 
Deutscher Lander. 

Jack Bennett and Ted Ball met the same argamtnts that were 
put up by the British economic group and by our own Economics 
Division against reorganization of the big industrial combines. 
Since representatives of the ''Big Six'* banks, and especially of 
the "Big Three," had voted the majority of the proxies at stock- 
holders' meetings of all the important industrial combines, the 
slashing of this function alone was expected to play havoc with 
the recovery of industry. Other evils from *Mrastic reorganization" 
of the banking function were cited in a running argument that 
lasted for over a year. 

Both the LG. Farben reorganization and the Finance Division's 
banking reorganization provided some contrast with the complete 
absence of steps by the Economics Division under the same general 


directives. At first, there were press releases claiming progress in 
carrying out directed Ki^iamgcs, On February 2, 1946, a dispatch from 
Berlin reported: 

Some progress has been made in converting Germany to an 
agricultural and light industry economy, said Brigadier General 
William H. Draper, Jr., chief of the American Economics Division, 
who emphasized that there was general agreement on that plan. 

He explained that Germany's future industrial and economic 
pattern was being drawn for a population of 66,500,000. On that 
basis, he said, the nation will need large imports of food and raw 
materials to maintain a minimum standard of living. 

General agreement, he continued, had been reached on the 
types of German exports— coal, coke, electrical equipment, leather 
goods, beer, wines, spirits, toys, musical instruments, textiles and 
apparel — to take the place of the heavy industrial products which 
formed most of Germany's prewar exports. 

General Draper's reference to the "prewar" German exports as 

having been predominantly in the fields of heavy industry was 
strictly true only of exports in the immediate prewar years while 
German heavy industry was being deliberately overbuilt. 

The wonder is that neither the British nor the Americans con- 
tinued this progress in converting Germany toward a light-industry 
economy which General Draper cited in his press statement. If the 
economics authorities had steered away from heavy demands on 
transportation and oil, and recognized that the coal shortage was 
the main factor limiting production, the way would have been 
open for General Clay to write his own ticket. With a green light 
and a pile of coal for the light industries, and yellow or red lights 
for the others as indicated, there was no good reason for failing to 
get results. This was the situation when the four powers reached 
their Level of Industry Agreement on March 29, 1946. 

On April 3, I was forced to leave for the United States to recruit 
a stalT for my Decartelization Branch. Practically all the experienced 
investigators had returned to the United States following the dead- 
lock with the British and the wrangles between the Cartels Divi- 
sion and the Economics Divisiota. At Berlin, my "staff'* had dwin- 
dled to one man with antitrust experience, Creighton R. Coleman. 


In view of the press reports of our troubles at Berlin, people with 
cartel experience were refusing to accept jobs with us on the strength 
of cabled appeals. 

At Washington, I worked at one desk in the Pentagon recruit- 
ing for the Decartelizatioii Branch while down the hall in another 
office Frederick L. Devercux, General Draper s deputy^ interviewed 
candidates for the Industry and Trade and Commerce branches of 
the Economics Division. As head of the Industry Branch, Mr. 
Devereux selected Colonel Lawrence Wilkinson, who had had some 
prior experience in Germany as representative of American banks 
which had underwritten loans to Germany. Colonel Wilkinson was 
to replace Colonel James Boyd, who was returning to the United 
States to become, eventually, director of the Bureau of Mines» 

Most of the new men recruited at Washington were permitted 
to move their families and household goods to Germany. The regula- 
tions were amended at the same time to allow employees already in 
Germany to send for their families. Before I flew back to Berlin^ I 
saw my own wife and two children aboard an army transport. 
The prospects seemed good for a long occupation, during which 
arguments over policy could be settled and constructive results 

On my return to Berlin on June 24, 1946, after a very difficult 
time rounding up some forty lawyers, economists, investigators and 
secretaries, most of them with outstanding records in public service, 
Creighton Coleman met me with news that was like a sudden blast 
of cold air. The replacements Mr. Devereux had selected for the 
Industry and Trade and Commerce branches had been coming in 
with only the barest briefing on what official policy was supposed 
to be. Almost with one accord they were blaming the visibly slow 
pace of German recovery on "reforms." They were condemning the 
Trading with the Enemy Act, which prevented unrestricted direct 
dealings between American and German businessmen; the denazi- 
fication program, which they said was denying German industry 
the services of the ''best management"; the decartelization program, 
which they claimed would ''break up" the efficient industries into 
unmanageable little fragments. They assailed the proposal to open 
up the patent pools of the German combines for use by all Ger- 


man industries on the ground it would discourage new inventions 

and the disclosure of new technology. 

Considerably disturbed by the swiftness of these moves, I went 
to General Clay to report on the Washington trip. He said that the 
decartelization program had lost ground considerably in my ab- 
sence. Congress was becoming economy-minded, the spotlight was 
turning to "recovery** and "saving the American taxpayers* money.'' 
In his opinion we would have to move rapidly, because the pressure 
to do nothing at all might be expected to increase. Several 
visitors from the United States, including some congressmen, had 
gone home with the impression that the decartelization program 
was a combination of the Morgcnthau Plan for deindustrializing 
Germany and a scheme to break up the remaining industries into 
thousands of unrelated plants. 

It did not take long after I left General Clay*s office to discover 
at least part of the reason for the strange tales being carried back 
to the United States. That very evening I was asked to attend a 
dinner sponsored by General Draper and the Economics Division 
for a group of six visiting American industrialists who had come 
to Europe for a meeting of the International Chamber of Commerce 
at Paris. They were just rounding out two days spent at Berlin with 
the Economics Division in a "survey of the economic situation." 
After dinner they were to hear brief summaries from two branches 
which had not been heard from in the earlier discussions. 

To preface the two summaries. General Draper explained his view 
that the great and immediate need was recovery, to save the Ameri- 
can taxpayers' money. Of the two less important branches of his 
division, one, Restitution, was necessary to correct certain evils of 
the Nazi regime, regardless of what the cost might be. The restitu- 
tion of looted property was not expected to retard recovery unduly. 
The other branch, Decartelization, was concerned with certain 
changes that might have to be made in the future although for the 
present the cartels had been *'put out of action" by the war. At the 
end of the proceedings, as the guests twisted in their chairs and 
finished their cigars, I had five minutes to present a picture of the 
aims and program of my branch. 

The six distinguished guests on this occasion included Philip D. 


Reed, chairman of the board of General Electric and head of the 
American delegation to the International Chamber of Commerce; 
Robert R. Wason, president, and Robert Gaylord, chairman of the 
executive committee, of the National Association of Manufacturers; 
John Abbink, chairman of the National Foreign Trade Council; 
Randolph Burgess, vice chairman of the National City Bank of 
New York; and Benjamin H. Beckhart, economist of the Chase 
National Bank. Several of the visitors were friendly as the dinner 
broke up, said the National Association of Manufacturers was of 
course on record as opposing cartels, but they were not sure that 
"trust busting** on a large scale was called for in Germany **at the 
present time,'* and it might do a great deal of harm. I had spent 
my five minutes describing how a body of less than a hundred 
men had been able to deliver the German economy to the Na^Js 
bound hand and foot, and how we proposed to establish a less 
centralized control over German industry. Yet it was clear that 
the net impression of the guests at the end of two days was a stereo- 
typed impression that we were *'trust busting'' indiscriminately 
among struggling businessmen who were already prostrated by 
the war. 

This was no isolated case. Throughout the rest of the summer, 
when visiting groups arrived from the United States, we found 
again and again that the Dccartelization Branch was allocated a 
brief period of time toward the end of each program to make a 
statement, and always after an adverse context had been built up 
by other speakers from the Economics Division. The previous 
speakers, nominally allocated ten or fifteen minutes, often ran on 
for twenty or twenty-five; but invariably General Draper, or 
whichever of his deputies happened to be in charge of the meeting, 
would introduce the subject of dccartelization as if it were an after- 
thought, emphasize that it was not important at the present time, 
and heavily underscore the point that the talk would be i/ery short. 

We decided to direct our attention first toward clearing up the 
four-power negotiations for a decartcUzation law. The American 
position had been coniuscd on this msLtttT ever since the squabbles 
of October and November 1945. If we were being misunderstood, 
our cue was to get all issues clear and our position straight on the 


record as fast as possible. Once we knew the exact points of dif- 
ference with the French, British and Russians, we could go to 
General Clay with concrete proposals for a settlement of the stale- 

During July we had an uphill fight in the four-power committee 
to define the points of agreement and disagreement. The Soviet 
delegation occupied the chair in each committee and directorate for 
that month, under the rotation system. Our chairman was Sergei 
Bessonov, who had served a short prison term after the Moscow 
trials in 1938, and who was proceeding carefully and cautiously on 
each point. It took a little over four weeks of patient statement and 
restatement of the American position to find whether or not the 
differences with the others were fundamental. 

At our second meeting in August, we at last had three-way agree- 
ment on a draft of a law which in one section defined the kinds 
of cartel and monopoly practices which were to be prohibited. la 
another SGction^ the draft law set out three ways of measuring "large 
size" in an industrial combine: by percentage of control over the 
industry, by total vahie of its plants and other assets, and by total 
number of employees- It was proposed that a combine should be 
permitted to control a greater percentage of an industrVj or a greater 
^ggi'cgate of properties^ or to employ a greater number of workers 
only if a four-power commission or the Control Council found that 
the exemption w^as necessary. 

Though the British member of the committee, Brigadier Caton 
C. Oxborrow% still had to disagree with three points, we had unani- 
mous agreement on a statement of those points. The same agree- 
ment on the exact points in dispute prevailed in the Economic 
Directorate, where our paper had to be approved before going to 
the Co-ordinating Committee. The British could not agree to any 
explicit definition or prohibition of economic practices fostering 
monopoly. They could not agree to adopt any standard of size that 
wouid raise a legal presumption of "concentration.** They could 
not agree to give a four-power agency the authority to judge cases 
and issue binding decisions, but only to make recommendations to 
the commanders of the respective zones. 

On Saturday, August 3, 1946, before the division directors' meet- 



ing, I went to General Clay's office to report the agreement with 
the British on points in dispute and with the French and Russians 
on the text of a law. I took with me a three-page summary of a 
program to be carried out in our own zone while we went ahead 
and worked for four-power agreement. This proposal was based on 
a statement of policy prepared at Washington by the Interdepart- 
mental Committee on Cartels and Monopolies and approved by the 
President's Executive Committee on Economic Foreign Policy. My 
memorandum pointed out that of the eighty-five outstanding 
German industrial combines, twenty-seven had their head office or 
principal place of business in our zone. These could be reorganized 
from the top down, while individual plant groups belonging to 
combines with head offices in other zones could in most cases be 
treated as independent enterprises and severed from their "foreign" 
parent corporations. 

The specific steps of the program suggested by the President's 
Executive Committee were as follows: 

a. Elimination of Holding Companies, Wherever companies 
have been held together by stock ownership, all top holding com- 
panies and all intermediate concerns which are merely holding 
companies should be dissolved. All operating companies should be 
required to divest themselves of any securities held in other com- 
panies, and should be confined to ownership and operation of 
physical plants. Future stock acquisitions by such concerns should 
be forbidden. 

Mergers of any parts of divested or dissolved companies should 
be prohibited unless permission is granted after an affirmative 
showing of public interest. Transfers or purchases of physical assets 
among remaining companies should be similarly prohibited, to 
prevent the eflect o£ mergers through transfers of assets. 

b. Elimination of Interlocking Directorates. To prevent combines 
from being held together through common top personnel, all 
officers and directors of companies included in prohibited com- 
bines should be required to surrender all their offices and director- 
ships except those in the one company in which they are principally 

c. Elimination of Contractual Ties, Contractual and intercom- 
pany service arrangements having the eflect of maintaining com- 


mon management should be canceled. Specifically, arrangements 

for performance of central office services, central accounting, central 
finance, interchange of personnel, exclusive agencies, and prefer- 
ential or exclusive trading rights, should be prohibited. 

d. Elimination of Patent Restrictions, Enterprises which have 
been members or parts of prohibited combines should be required 
to grant nondiscriminatory licenses to all applicants under patents 
which they now hold and under licenses which give them rights 
to sublicense. They should surrender exclusive or preferential 
rights under licenses granted by other enterprises. They should be 
required, for a considerable period of transition, to make available 
to ail comers, on nondiscriminatory terms, any technology or 
patent rights which they make available to other concerns which 
have been part of the same combine. 

c. Elimination of Large Single Enterprises. Single operating 
companies which, standing alone, still are so large as to fall within 
the "mandatory" size standards set out in the draft law, should be 
separated into technically and economically operable independent 
units. Parts of a company should be separated from one another if 
they are in unrelated industries, if they have had a separate cor- 
porate existence within the past ten years, if they were acquired 
under "Aryanization" or other National Socialist economic policies, 
or if they are so separated from one another physically and tech- 
nologically that they do not in fact have a common operating 

After reading this paper and discussing It, General Clay wrote 
across the top, "Approved in principle — LDC* He then told me 
to inform the British, French and Russian representatives at our 
next meeting that, pending four-power agreement, General Clay 
was going to issue a decarteUzation law for the United States zone. 
If any of the others wanted to follow suit, we would be glad to 
co-operate with them in enforcement. Later, at the directors* meet- 
ing, General Clay repeated his instructions to me to make them a 
matter of record. 

It was my hope, though not necessarily my expectation, that this 
restatement of the way in which we proposed to approach the prob- 
lem of economic decentralization might put a stop to some of the 
misunderstanding of our purposes. Much of our opposition from 


old hands and newcomers in the Economics Division seemed to 

come from ignorance of the ofScial policies and of the many find- 
ings that lay behind those policies. If we at least had a military 
government law on the subject, possibly the arguments could be 
confined to the issues and findings in specific cases. 

Getting the law issued was another matter. First, Ambassador 
Robert D. Murphy, the Political Adviser, questioned General Clay*s 
decision to act without the agreement of the British. General Clay 
replied with a note saying that if the Americans, French and Rus- 
sians reorganized the combines and broke up the restraints of trade 
and monopoly practices in their zones, and left the British alone 
with their cartels, that in itself would to some extent end the 
centralized controls over German industry* In addition, it might 
force the British to act, he said. Actually, that is what did happen 
in the case of the banks, some months later, when the British found 
that their opposition was not going to delay the Finance Division's 
decentralization of the banks in our zone. 

We prepared a draft law, together with an appendix listing those 
of the eighty-five major combines which had properties and assets in 
the United States zone. Within a week after General Clay gave his 
order we had circulated the draft, together with the listing of the 
combines, to all interested branches of the Economics Division. In 
all cases where other branches of the Economics Division did not 
concur in the listing of a given combine, we discussed the particular 
case with the branch or section chief concerned and, in the end, 
either got concurrence or else dropped the combine from our list 
in order to eliminate delays in getting the law to General Clay for 
signature. After nearly a month of delays caused by objections from 
the Economics Division and from some other divisions which 
wanted special exemptions for German activities under their con- 
trol, the law was ready to be presented to General Clay. All that was 
needed was the signature of the director of the Economics Division. 

In the first part of September 1946, before signing the draft of 
the law General Draper returned briefly to the United States for 
discussions of the proposed bizonal merger agreement with the 
British. Upon his return to Berlin on the evening of Friday, 
September 13, General Draper called me from Tempelhof, just after 


his plane arrived. He said that he had talked about the decarteliza- 

tion law with William L. Clayton, then Assistant Secretary of State 
for Economic Affairs. These talks, he said, had revealed a shift of 
position at Washington on the subject of a ^'mandatory" law. Also, 
there was some doubt in the State Department about going ahead 
without the British, 

The following morning, Saturday, September 14, 1946, General 
Clay called me to his office. Among other things he asked how we 
were coming with the decartelization law for the United States 
zone. He said he had instructed me to prepare such a law more than 
a month before. How long did it take to change a few words? 
Actually it took from August 3, T946 to February 12, 1947 to push 
these few words through the machinery of military staff procedure 
that General Clay had set up, but now I merely reported my tele- 
phone conversation of the preceding evening. General Draper 
felt that in view of the possible shift of policy in Washington, we 
should hold up the issuance of the law until we had tried once more 
to get the French and Russians, as well as the British, to agree to 
a law instead of proceeding unilaterally in our zone. General Ciay*s 
face clouded up and his speech became even more controlled and 
precise than usual. He stated that his instructions from Washington 
had been that the law must be "mandatory." He would not alter his 
position unless Washington put the order in writing. If he did 
receive a written order he would make a vigorous protest against 
the State Department's shifting of the American position while we 
were in the midst of dealing with the situation that had arisen under 
the original policy. He went on to say that he was not certain that 
someone from the Economics Division had not done a certain 
am.ount of selling of the "nonmandatory" position in Washington. 

I agreed that the position which General Draper had reported the 
previous evening was precisely the position that the Economics 
Division had been trying to sell since October 1945, when the 
confusing issue of a "nonmandatory" law as against a ''mandatory" 
law first came up. I repeated again, as on several earlier occasions, 
that I was finding my double position as a "division director" and a 
branch chief intolerable, since I knew what the official policy was 
and had been trying to carry it out. He asked me to bring up the 



question of issuing the law later that morning at the division 
directors* meeting so that he could make his position once more 
perfectly clear. So, at the meeting I said with a straight face that 
recent developments had led to some doubt about whether we 
should go ahead with the unilateral law for our zone alone; where- 
upon, with General Draper looking on, General Clay laced into me 
for delaying after he had given his specific instructions. This 
slightly conspiratorial way of saving the surface was disturbing. 

Meanwhile there were rumors from Washington of a possible 
Senate investigation of military government. Several officers re- 
turning from Germany had complained to the former "Truman 
Committee/* now headed by Senator Kiigore, that important 
policies were not being carried out. The rising tension that followed 
the rumors had no visible effect, however, on the Economics 
Division's "briefings" of visiting delegations from the United 
States. What at first had appeared as ofl-the-cuff statements by men 
new to their jobs began to look more like an established routine. 
The issue over such "briefings" reached a climax after a session 
with a group of visiting editors from the United States, held in the 
Economics building on October 9, 1946. Peter V. Martin, deputy 
director of the Economics Division, was in charge of the meeting. 
He introduced Colonel Wilkinson, as chief of the Industry Branch, 
to make a statement. Colonel Wilkinson repeated his favorite theme 
that the denazification and the decartelization programs, which 
he often confused with one another, were responsible for delaying 
German economic recovery. 

This time Colonel Wilkinson waxed poetic. He said that in trying 
both to help Germany recover and to get rid of Nazi management 
and the centralized controls of the cartels and combines, we were 
"pulling a man up by the hand while we kept one foot on his neck." 
He went on to assert that> "as everyone knows,'* in an economy of 
scarcity there must be highly centralized controls "to avoid wastage 
of materials and manpower.** Only a rich country, like the United 
States, could afford to waste materials, manpower, and plant ca- 
pacity on an "antitrust" policy. 

At least we were getting close to a clear statement of how the 
new crop of administrators viewed the German economy. I thought 



of the intercepted telephone conversation, reported two weeks 
earlier, between a German official at Stuttgart and one at Munich. 
They were agreeing on a new method of reporting production 
figures so as to give a "more pessimistic picture,'* and thereby save 
plants from being taken as reparations. Now we were being told 
that the men who had had undisputed control of the German 
economy even under the Weimar Republic, and had run it so far 
olT the road that only a war and an organized looting program 
could save it, were "indispensable." Shades of "Great Gustav" and 
the trouble Albert Speer had getting the Krupps and others to bend 
to the needs of their own war program! 

On the morning of October 10 I went to General Clay, told 
him about the "briefing" o£ the editors and publishers, and asked 
to have the Decartelization Branch removed from the Economics 
Division and restored to its original status as a functional division 
of military government. I pointed out that we could not hope to 
see our program represented accurately to the outside world so long 
as the Economics Division controlled what was said about it. If this 
routine occurred once more I would have to fight back regardless 
of how spectacular the "briefing" might become. I could no longer 
remain silent and dutifully "subordinate** if such statements were 
made in my presence. 

We had to expect a swing of the pendulum, General Clay replied. 
It might have to swing even further away from the original ob- 
jectives of the occupation before any backswing could be hoped for. 
He asked me to stay in the Economics Division while he studied 
the matter. With a senatorial investigation possibly in the offing 
he did not want to shift a major unit in such a way as to imply 
criticism of the Economics Division. In the meantime, to deal with 
the immediate issue, he called in his secretary and dictated this 
memorandum to General Draper: 

It has come to my attention that at a meeting of editors visiting 
from the United States, statements were made to the effect that 
the revival of economy in Germany was made more difficult (a) by 
denazification and (b) by decartelization, thereby indicating that 
two major policy objectives of the United States were at least in 
part responsible for economic conditions in Germany today. 



As you know, I have never attempted to restrict anyone's per- 
sonal views or the expression, of these views as personal views. 
However, in officially presenting OMGUS policy to representatives 
from the United States, it does not seem quite fair to me to express 
personal views. 

The extent to which denarification has affected the revival of 

German economy is a matter of opinion. I am still of the view 
which I held from the beginning that the denazification program 
has affected the labor groups and lesser employees so favorably as 
to have a beneficial rather than a harmful effect. I am sure that 
the failure to have denazified industry would have resulted in a 
batde between management and labor which would have been 
disastrous to all of our objectives. I can not agree or accept a 
conclusion that denazification has had a harmful effect on the 
German economy. 

The same applies equally to decartelization. Actually, our de- 
cartelization program has not progressed sufficiently as yet to have 
any real effect on the German economy, as the physical condition 
of industry has in itself prevented cartel actions of any magnitude 
during the past year and a half. I am convinced, however, that 
the re-creation of small businesses in Germany will do more to 
revive its economy and to provide a far more satisfied population 
than in the regrowth of cartels which, in many instances with the 
government support, were able to dictate their own terms to their 

It seems to me that a lukewarm attitude toward decartelization 
is certain to develop if we begin to preach that decartelization will 
stifle German economy. As you know, many sincere people believe 
that the foundation of free enterprise in America rests in small 
business, particularly where ownership and management arc com- 
bined to work closely with employees. While I am not attempting 
to carry a brief for small business against big business in the United 
States, I am certain that the revival of democracy in Germany is 
dependent on our ability to develop an economy which is not 
controlled by a handful of banks and holding companies. 

I would appreciate it if you would make this policy fully under- 
stood as representing the official view of OMGUS. 

The following Saturday, October 12, 1946, at the meeting of 
division directors. General Clay abandoned his usual procedure of 


calling for progress reports from all directors and instead invited 

"gripes" or criticisms from all of us in turn as we sat around the 
table. General Draper, whose turn came third on the list, stated that 
his first "gripe" was decartelization. He singled out the policy in- 
structions from the State Department that had to do with limiting 
the '*size** of the chains of companies kept under one management. 
*'Germany in the accredited world markets, which it is going to 
have to enter, has got to have the opportunity to have efficient in- 
dustrial organization; and where that requires sizable industry or 
plants, that should be permitted,*' he said. 

General Clay had previously said that he would withhold com- 
ment on particular complaints until everyone had been heard. But 
at this point he interrupted the proceedings. With his black eyes 
flashing, he said: "I don't believe that we can accomplish our purpose 
without striking out the large corporations in Germany. The con- 
duct of those existing in the past condemns them- I personally am 
fully in sympathy with decartelization based on size until we have 
destroyed conditions which did exist in Germany, accompanied bv 
an antitrust law that will prevent the most harmful eflects of car- 
tclization." He went on to remind General Draper of his duty as 
an officer, regardless of his personal opinions, to adhere strictly to 
policies which were fixed by official statements from Washington. 

Clearly we were talking more and more at cross-purposes with 
the critics who spoke always of our "breaking up" industries, try- 
ing to establish "small business," and setting up a "wasteful and 
inefficient" German economic system* Actually, men like General 
Draper were right when they said the war had "broken up" the 
combines, in the sense that the operation of their plants was now 
decentralized. With Germany divided into four zones and Berlin 
an island one hundred and twenty-five miles inside the Soviet zone, 
how could the management of Siemens & Halske at Berlin really 
supervise the work of hundreds of subsidiary corporations located 
all over Germany ? How could men in the Haniel family's top hold- 
ing company, Good Hope, at Niirnberg, really oversee the operations 
of steel plants at Oberhausen in the Ruhr, coal mines near Dort- 
mund, river shipping companies on the Rhine, and machinery and 
diesel engine works in Bavaria? We were not interfering with 


production. We simply wanted to make the operation o£ the 
separate plants legally independent, so that the old management 
would not be able later to pull everything together on the old basis 
by a simple stroke of a pen. 

The "concentration of power" we were talking about was a form 
of over-all economic planning, carried on privately, out of sight, by 
the kind of men who had made up the "Himmler Circle." We 
were not talking about the way even "mass production" business 
is supposed to be carried on in the United States. We decided to 
do what we could to put the discussion in a new light, with attention 
focused on German business as we had found it. We put part of our 
growing staff to work on a summary of all that we had learned 
about Germany's cartels and combines. 


The Christmas-tree Economy 

WE wanted to lay down side by side our picture of the cartel and 
combine-ridden German system, and the guidelines Washington 
had provided to help military government deal with the problem. 
Beside these, on the table, we wanted to lay the new crop of ideas 
about the need for keeping the "old experienced management," the 
need for centralizing management, and the other conditions that 
some people were now considering essential to Germany recovery. 
How did the new ideas square with actual conditions in Germany ? 
Where the Washington policies were not being followed, were the 
substitutes actually contributing to a more orderly and speedy 
recovery, or to security against future German troublemaking? Since 
some of our colleagues at Berlin found the official policies un- 
workable, what kind of economic ideas and developments did they 
find acceptable? What were they doing? 

We began to pay closer attention to some of the day-to-day prob- 
lems that came up, and the action that the Economics Division took 
to meet them. Were there some difficulties which Washington had 
not foreseen and which were forcing military government to 
improvise ? 

The Netherlands government, in a letter dated July lo, 1946, 
requested military government to allow a German, Dr. Alexander 
Kreuter, to visit The Hague for three weeks to take part in dis- 
cussions of economic and financial problems involving important 
interests of the Netherlands. The letter said that Dr. Kreuter had 
been a trustee of various interests of the Netherlands government 
since 1921 and had carried out his duties with great care and loyalty. 
Such a request had to be passed apon by the Combined Travel Board 



made up of military government representatives of the United 
States, Britain and France to determine whether the request would 
jeopardize any of the goals of the occupation. The Combined Travel 
Board asked the opinion of the Economics Division, because Dr. 
Kreuter was serving as a German consultant in the office of the 
director of the division. The Economics Division found no reason 
for denying the request of the Netherlands government, and the 
Board issued the necessary exit permit. 

Though the purpose of Dr. Kreuter *s visit was to discuss both 
economic and financial problems, the Finance Division did not 
learn of the trip until after Dr. Kreuter had left. Jack Bennett, 
director of the Finance Division, had previously raised a question 
about the military government employment of Dr, Kreuter, who 
was listed in the records of the SS as a contributing member. 
Dr. Kreuter claimed his connection with the storm trooper organiza- 
tion had been purely nominal and for business reasons only. Bennett 
asked the Visitors' Bureau to put a stop order on further travel 
abroad by this particular consultant until his record had been 
cleared up. 

During the German occupation of western Europe, Dr. Kreuter 
had been busy not only as a trustee of various Dutch properties in 
Germany and the occupied countries, but had operated with con- 
siderable latitude throughout Germany and German-occupied ter- 
ritory on other financial affairs. He had been manager of the 
German branch of the French collaborationist bank, Worms et Cie. 
He had also been for many years head of the Deutsche Kredit- 
Sicherung K.G., or German Credit and Investment Corporation, 
which had been set up in the 1920's with the help of a loan of ten 
million dollars from American investors, floated through Dillon, 
Read & Company. He had likewise headed the corresponding 
American firm, the German Credit and Investment Corporation of 
New Jersey. Another officer of the latter firm had been the Secre- 
tary-Treasurer of Dillon, Read, William H. Draper, Jr., whom 
Dr. Kreuter was now serving as a consultant. 

Dr- Kreuter had been very busy during the war. In the spring 
of 1942, when persons in the occupied territories still considered a 
German victory likely, a group representing French, German and 


American business interests, operating through Vichy in un- 
occupied France, had formed a syndicate to engage in banking 
operations in German-occupied Europe. This syndicate, the Societc 
de Credit Intercontinental, combined American, French and Ger- 
man capital and banking personnel in Europe. 

The French group, headed by the Banque de Tlndochine, in- 
cluded the investment bank of the Schneider-Creusot armaments 
interests and the French insurance syndicate. The American group 
included the French subsidaries of Ford, the International Business 
Machines Corporation, the Corn Products Refining Company and 
some others. The German group was headed by Dr. Kreuter of the 
Deutsche Kredit-Sicherung K.G. 

According to the plans, the chairman of the board of directors 
was to be General Count Adalbert de Chambrun, father of Count 
Rene de Chambrun, Laval's son-in-law. The board of managers 
was to include, in addition to Dr. Kreuter: Seymour Weller, nephew 
of Clarence Dillon, who had been acting as Dillon, Read's French 
representative; the Marquis Gabriel de Mun, former manager of 
the Paris office of the National City Bank of New York; and several 
representatives of the French banking and armaments firms. The 
legal department was to be managed by Francois Monahan, formerly 
with the Dulles law firm, Sullivan & Cromwell, and a business as- 
sociate of Count Rene de Chambrun. 

The rather ambitious plans of this new banking syndicate had 
been considerably curtailed after a storm of protest when a United 
Press correspondent in Vichy cabled back a description of the 
project in a dispatch to his papers in the United States. 

A few weeks after Dr. Kreuter returned from his trip of July 
1946 to The Hague another request was made for an exit permit. 
This time the request was turned down by the Visitors* Bureau. In 
a few days a trio of Dutch officials appeared at the office of Ted Ball, 
deputy director of the Finance Division, to ask why the exit permit 
had been bJocked. They were told of the unanswered questions about 
Dr. Kreuter*s SS contributions and other collaborationist activities- 
The three men left, but were back the next day to visit Jack Bennett 
on the same matter. Ball and two of his staff joined in the discussion. 
The Dutch officials wanted to know first what was the relation be- 



tween the Finance Division and the Economics Division. Tlien 

they pointed out to Bennett and Ball that there vi^ere also certain 
American interests involved in the matters being discussed in the 

Bennett replied that the Finance Division and the Economics 
Division were separate and co-ordinate organizations each report- 
ing directly to General Clay. He went on to tell the gentlemen 
from the Netherlands that all of the military government were 
representatives of the government of the United States, rather than 
of particular "American interests.'* He cited the questions about 
Dr. Kreuter*s record and suggested that they report them to the 
Netherlands government. If the Netherlands government wanted 
to renew the request after being informed of the reasons why it had 
been turned down, the question could be discussed further. The 
request was never renewed. 

As we counted the number of such vaguely defined projects that 
occupied much of the daily routine, the Economics Division 
showed few signs of having a consistent plan for carrying out the 
objectives of the occupation* Instead there was a great deal of 
improvisation that followed the formula, "Herc*s good old Henry! 
What can we do for Henry and what can Henry do for us?" 

On June 30, 1946, an announcement had been made at Berlin 
that certain restrictions on travel into Germany were being relaxed. 
Selected representatives of American firms which owned factories 
and property in Germany would be allowed to visit Germany for 
limited periods to make an inspection, though not to engage in 
direct business transactions. Throughout the war, an organization 
known as the Foreign Property Holders' Protective Association, 
representing American firms with industrial plants in Germany, 
Japan and enemy-occupied territory, had kept a delegation at 
Washington to confer with the army s Civil Affairs Division on the 
treatment of their overseas interests. The new rule of June 30 was 
in line with the recommendation of this and like groups. The 
Economics Division complied with the new rule by setting up a 
special ofBce under a lawyer named Frank Fritts, whose job was to 
expedite clearances for such visits and to see that accommodations 
were made available. 


In the absence of an agreed policy the trouble in admitting some 
businessmen but excluding others was not that those who came in 
would be crooks, but that the economic design that emerged in 
Germany might be full of improvisations. 

One of the earUest men to come in on an inspection trip was 
Mn Gordon Kern, vice president of the International Telephone 
and Telegraph Corporation, owner of a group o£ corporations 
which together formed the third largest electrical combine in Ger- 
many, ranking next to Siemens and A.E.G. The IT. & T. group in- 
cluded principally the Standard Elcktrizitats-Gesellschaft, Mix & 
Genest A.G., and C. Lorenz A,G. The chairman of the board in 
all three was Gerhardt A. Westrick, von Ribbentrop's "unsuccess- 
ful" propagandist. He had protected the companies from seizure 
by German authorities by turning the top management over to 
SS leaders and other Nazi Party members. These men had made 
sure that all the companies contributed regularly to the Himmler 
Fund through the confidential account **S*' maintained by Baron 
von Schroder at Cologne. 

As early as 1938, with the approval of the American parent com- 
pany in New York, one of the German subsidiaries, C. Lorenz, had 
acquired a 25 per cent Interest in the Focke-Wulf military aircraft 
company. Throughout 1938 and 1939, the German company laid out 
large sums in plant expansion to take on advance orders for arma- 
ments from the Nazi government. Before the w^ar actually started, 
Colonel Sosthenes Behn, then head of the New York corporation, 
had given Westrick general power of attorney to control the 
American shares in the German subsidiaries. Before the fall of 
France, Westrick had been given the additional power of attorney 
to take control of other LT. & T. companies in the rest of Europe 
wherever German troops should move in. 

Though Mr. Kern came in at first on a thirty-day permit, he 
stayed on with extensions from month to month. His activities 
rapidly broadened beyond ^'inspection" of the condition of the 
company's properties. Before long he had the Lorenz factory operat- 
ing on a contract with the Army Signal Corps to supply repeater 
tubes for the long-distance telephone circuits of the American zone. 
When Washington cabled a query about the length of Mr. Kern*s 



Stay, the reply was that he was managing a plant supplying services 
considered essential to the occupation forces. Somewhat later, his 
activities broadened still further. We received from the postal censor- 
ship a copy of a letter written by a German patent lawyer in West- 
phalia to the patent attorney of an LT. & T. subsidiary in New York. 
According to the letter, Kern had promised to arrange military per- 
mission for the German lawyer to go to Switzerland to discuss the 
*'patent situation" with the LT. & T. subsidiary in Switzerland. 
This much was hearsay. But a few days later a request sponsored by 
Mr. Kern went to the Combined Travel Board asking permission 
for the Westphalian attorney, who was described as old and in ill 
health, to make a brief visit to Switzerland to recuperate. At this 
point, representatives of the Decartelization Branch and the 
Finance Division demanded that Mr. Kern's permit to remain in 
Germany be canceled; but the Economics Division decided instead 
merely to caution him about observing the rules. 

We objected not only because an American firm was ''doing 
business'* on a preferential basis, while competitors were excluded 
— the presence of competitors is often better than police supervision 
and censorship — but also because under the Potsdam Agreement, 
radio and electronic equipment manufacture v/as to be eliminated 
from Germany as soon as German exports of other materials were 
enough to pay for imports of this kind of product. To make 
complicated items of these types, it is not only necessary for the 
factory itself to be revived, but a number of "feeder** industries, 
tool and die shops, and other satellites also have to be rebuilt. Many 
of these require expensive raw-material imports. Granted that the 
Signal Corps needed repeater tubes, was this way of acquiring them 
part of a coherent and well-conceived program? Or had the his- 
torical accident of an American firm's interest contributed to the 
revival of this plant in preference to glass factories, leather works, 
or other light industries? 

Preferences in reopening plants were not the only visible signs 
of "planless planning.** We had been hearing a lot about the 
superior efficiency and technological skill of the ^Sveli-estabiished" 
firms and their experienced management. Early in 1946 Genera! 
Clay had insisted that German chemists must be put to work to 



produce penicillin for the German public-health services in order 
to cut down on expensive imports. The Industry Branch quickly 
picked the biggest chemical plant in our zone, the I.G. Farben 
works at Hochst. They turned over to the Farben chemists all 
the available descriptions of American penicillin production 

After six months the Hochst chemists were still fumbling around. 

General Clay was becoming more and more acid in his comments, 
and the Industry Branch sent a technical team to investigate the 
delays. They came back with a report that new funds would be 
needed to build extensions to the Hochst plant before quantity 
manufacture of penicillin could get under way. The Industry 
Branch then asked me, as I.G. Farben control officer, to negotiate 
a four-power agreement that would allow me to turn over the 
equivalent of a half million dollars out of the I.G. Farben funds 
for preliminary plant expansions, with the expectation of turning 
over about ten million more before the project was finished. 

At this point we decided to make some inquiries of our own. We 
were already having trouble with the French control officer, 
Colonel J. J. Franck. He was insisting that T should agree to turn 
over twenty million dollars in Farben funds for rebuilding the 
synthetic rubber facilities at Ludwigshafen, even before any funda- 
mental agreements had been reached on plans to prevent I.G. Farben 
from being woven back together. If there were any reasonable 
alternatives it was hardly the time to open the dikes and start pour- 
ing out the equivalent of two hundred million dollars which I held 
in impounded funds. 

What we found was that the German managers at Hochst, be- 
sides failing to find the answers to the technical problems, were 
sitting on the American information and refusing to allow tech- 
nicians from other German chemical companies to see it. The 
Hochst managers wanted to keep the information as a "trade 
secret.** They had also demanded from the Industry Branch the 
assurance that, if they did succeed in producing penicillin^ in 
quantity, they would be given a monopoly of German production. 
In the meantime, in order to establish themselves in the market, 
they even wanted to sell American-made penicillin under the 



Hochst label. Otherwise, they said, the penicillin project would 

not be a commercially attractive venture. 

It was not nearly so strange to us that the German management 
should have looked at the operation in this way, as that these facts, 
which we found confirmed in the report of the Industry Branch, 
should have been accepted without comment by military govern- 
ment officers. I refused to release any funds under these circum- 
stances and Colonel Wilkinson took the issue to General Clay* 
General Clay, too, challenged me, you were a German business- 
man, wouldn't you do the same thing?" However, he did not order 
me to release any funds. 

The penicillin problem was still unsolved early in September 
1946 when a Lieutenant Colonel W, E. Ryan came to my office. 
He had just been assigned, he said, to the Industry Branch. He had 
been connected with the Heyden Chemical Corporation in the 
United States. The president of Heyden, Mr. Bernard R. Armour, 
he said, was interested in acquiring some I.G. Farben plants in 
Germany, including the Hochst plant, to add to the chain of chemi- 
cal properties which his group had been buying in the United 
States. These latter had included the purchase from the Alien 
Property Custodian of the controlling interests in American Potash 
and Chemical Corporation, the Schering Corporation, the Ore 
and Chemical Corporation, and the Pembroke Chemical Cor- 
poration, all of which had been American subsidiaries of German 

Colonel Ryan had with him copies of correspondence between 

Mr, Armour and General Draper covering a proposed arrangement 
under which the Heyden firm would take charge of the project 
and would supply its penicillin expert. Dr. Gregory Stragncll, 
formerly of the German Schering firm, to supervise the work at 

The Heyden Chemical Corporation itself had been founded in 
1925 as an American subsidiary of the Chemlsche Fabrik von 
Heyden A.G. of Radebeul, near Dresden, Germany. The German 
interest in the company had been seized by the Alien Property 
Custodian and the Armour group was now in control under an 
arrangement worked out with the Custodian. The Treasury De- 


partment, as well as the Alien Property Litigation Section of the 
Department of Justice, had been vigorously opposed to the Cus- 
todian's disposal of the Heyden and Schering properties, es- 
pecially because men like Dr* Stragnell, who had had close prcwar 
connections with Schering A.G. of Berlin, were to be active in the 
future management of the American firms. Our Industry Branch, 
however, insisted that it was necessary for them to deal with those 
who were best qualified to do the job, regardless of other con- 

Negotiations with the Heyden firm continued over our objections 

until the middle of November, when General Draper received a 
letter from Charles P. Kindlebergcr, chief of the Division of Ger- 
man and Austrian Economic Ajffairs in the State Department. I^i- 
cluded with the letter was a Treasury Department memorandum 
summarizing the objections to the establishment of new links be- 
tween the Heyden group in the United States and firms in Germany. 

Mr. Kindlebergcr said, '1 am assured that Treasury docs not 
propose to do anything about it. However, I am not unaware that 
memoranda such as this have a habit of well-timed leakage to cer- 
tain columnists." General Draper wrote back that he **had gotten 
some hint concerning this general picture from one of our peopk 
here," and added that "entirely aside from these considerations? it 
would be obviously preferable to have one of the real leaders in the 
American chemical field and in penicillin furnish the supervision 
and know-how, provided the question of necessary capital invest- 
ment in dollars can be satisfactorily arranged.** 

Thereupon, a new proposal was made to have the American firm 
of Merck h Company undertake the job, using the faciUties of the 
German firm, E. Merck, of Darmstadt. This arrangement, in turn, 
would require an agreement by the Attorney General to modify ^ 
decree, entered by a Federal District Court in an antitrust case, 
under which further business arrangements between the American 
and German Merck firms had been forbidden. The struggle over 
penicillin went on and on for many more months. 

Relying on the "leaders of the industry" was one of the formulas 
of the Economics Division. In the fall of 1946, George Allen? of 
the Reconstruction Finance Corporation, visited Germany to vvork 



out an arrangement under which loans could be extended to help 
stimulate production. The Economics Division for some time had 
been reporting that unless new capital investments and loans were 
poured in> German recovery would take a very long time. At first, 
loans and investments from private sources were out of the question 
because of the uncertainties of returns. To fill the gap, it was pro- 
posed at first to extend dollar credits from the RFC through two 
RFC subsidiaries, the U. S. Commercial Company and the Com- 
modity Credit Corporation. These credits would be used to buy 
raw materials in the United States, ship them to Germany, have 
them processed in German factories and then sold in export markets. 
Part of the proceeds of the exports would be used to pay off the 
RFC loans* Once this business had been established with govern- 
ment money, it was expected that private capital could be attracted 
to finance this trad^. 

General Clay went to Washington to complete the arrangements, 
following George Allen's visit to Berlin. Shortly after he arrived in 
Washington for the discussions, General Clay became concerned 
over the possibility of unfavorable publicity and other repercussions 
if materials should be allocated to German firms which had had 
prominent roles in the "cartel'* system. He sent an urgent cable back 
to Berlin. The Economics Division should "at once take steps to 
designate objectionable firms.'* Under no circumstances should 
these receive imported materials until they had been reorganized 
into groups of econonnically independent companies. 

This cable fell as a bombshell at Berlin, because the Trade and 
Commerce Branch had been building its export program around 
the "recognized** products of the "well-established" firms, including 
Siemens & Halske, Robert Bosch, the I.T. k T. subsidiaries, the 
Wintershall potash combine, the Friedrich Flick steel plants, and 
others. They had been instructed months before not to turn over 
export business to firms that were likely to lose their plants in the 
reparations program, and the Industry Branch had listed plants of 
many independent firms as reparations. 

It gave us very little satisfaction to say, "I told you so " Nearly 
a year before, the Economics Division had rejected our proposal to 
keep plants of independent firms off the reparations list as far as 


possible, and to start first with plants that could be separated from 
the big combines. At that time we had been told that if we "decar- 
telized" the big combines properly, there would be no difference 
between the plants of a big combine and the plants of an inde- 
pendent firm. Now General Clay's cable from Washington de- 
manded immediate steps to reorganize the "cartel*' firms whose 
plant facilities were needed in the export program* 

We immediately drafted a proposal showing how the plant groups 
that had belonged to the "objectionable" combines could be made 
economically independent* The Trade and Commerce Branch chose 
instead to argue that General Clay's order would bring the export- 
import program to a standstill. It was not until March 13, 1947, that 
our "staff study" outlining the reorganization procedure was ap- 
proved by the Economics Division and sent to General Clay's chief 
of staff. 

General Clay never signed the proposed order* Gradually the 
restrictions against allocations of raw materials to "cartelized" firms 
were relaxed without a formal order, "in the interest of promoting 
the export-import program." 

Relaxations of policies sometimes extended even to "reform" 
measures which had already been carried out. For example, under 
Control Council Law No. 9, requiring the dissolution of the LG. 
Farben combine, a four-power agreement eliminated the use of 
characteristic *'I.G." trade-marks on chemical products. The State 
Department had emphasized the need for such a decision, because 
shipping drugs and chemicals with LG. Farben trade-marks to 
foreign markets, especially in Latin America, would be a violation 
of the "replacement agreements" of the war period* Under those 
agreements the Latin American countries had bought up such 
trade-mark rights and retired the marks from local use, or had per- 
mitted private firms to buy them and retire them. 

The Trade and Commerce Branch at Berlin found two reasons 
why this policy "interfered with recovery." In the first place, all the 
pill-stamping molds in the LG, Farben plants had the LG. Farben 
trade names on them and it would delay production to change the 
molds and reprint the labels. In the second place, fhey had been 
counting on the "good will" of the LG* Farben reputation through- 



out the world to help promote sales of the goods. If they had to 
adopt some new trade-mark and establish the markets all over again, 
the goods would be much harder to sell. Besides, there was no 
money for a high-powered advertising campaign to launch any such 
new selling venture. So, in order to get their job done, they wanted 
to trade on the reputation of the I.G. Farben name. 

The performance of some of the "established" German firms was 
sometimes less vigorous on behalf of German recovery than were 
the efforts of our export-import oiScials. Under the RFC program 
for financing raw-material imports, the U. S. Commercial Com- 
pany made an initial shipment of some hundred and ten thousand 
bales of cotton for processing into textiles, with another shipment 
of the same amount to iollow shortly alter. The cotton was allocated 
to such firms as Christian Dierig A.G., Germany*s largest textile 
combine, whose management had played an important part in Hans 
KehrKs synthetic-textile program under the Four-Year Plan. As one 
memorandum circulated in the Economics Division put it, "The 
conviction is growing on all hands that resumption of textile pro- 
duction and exports in Germany can work out satisfactorily only 
if the selling end of the business is placed in private hands, and 
preferably in the hands of those who were experienced in the trade 
before the war." 

After a few months of the textile program, a minor flurry occurred 
when a shortage of sheets for the use of German hospitals in the 
American zone led to the discovery of shortages in the supply of 
finished textile products for essential uses and for export, as com- 
pared with the amounts of raw materials imported. At the same 
time, possibly by coincidence, rather large quantities of rough cotton 
* gray goods" began showing up in the black market in Frankfurt 
and other cities in the zone. 

Such incidents led us to make a few inquiries about the types of 
controls being maintained by the German authorities over scarce raw 
materials and the products of reviving German industry. Cleaning 
up the cartels and combines was being delayed because o£ the need 
for the centralized powers of the combines and trade associations, to 
avoid "waste'* of materials. We found some remarkable cases. For 
example, a ceramics factory had produced twenty-two hundred tons 


of chinaware, of which one thousand tons were of first quality 
suitable for the export trade and twelve hundred tons were "sec- 
onds," with slight defects. Two hundred tons of the "seconds'' had 
been sold to the army for the use of occupation families, and the 
other one thousand tons sold legitimately to Germans. Of the first 
quality chinaware, however, one hundred and twenty tons had been 
sold to occupation personnel through gift shops; sixty-five tons had 
been actually exported; and the other eight hundred and fifteen 
tons had "disappeared" without a trace, presumably into the black 

The point of the story is that when these facts came out it devel- 
oped that no regulation had ever been issued by military government 
to require German manufacturers to hold goods of exportable qual- 
ity for export. None of the firms which showed up with shortages 
had violated a single military government regulation in using up 
their allocations of coal on production that never saw the light of 
the legitimate domestic or export markets. 

The urge to cling to the "respectable'* firms with "well-known'* 
names was very deep throughout the Economics Division, regard- 
less of what the problem was. At one point the Economics Division 
came under criticism for failing to dissolve agencies of the Nazi 
Party, including commercial firms which had been set up to carry 
out parts of the war program. One of these was the Nazi govern- 
ment-owned corporation known as "Roges," one of the subsidiaries 
of the Rowak Handelsgesellschaft, a government corporation some- 
what like our Defense Supplies Corporation of the war years. Roges 
had been a stock-piling organization set up by the Nazis to gather 
semiprecious metals and alloys used for tool steel and other special 

The question was what to do with the large supplies of these 
metals when Roges was dissolved. 

The Industry Branch came up promptly with a solution. They 
proposed that the Roges stocks be turned over to the Metallgesell- 
schaft. It would not do to turn these metals over to just anyone, 
because, among other things, they said that might lead to competi- 
tion, which would be inflationary. The Industry Branch proposed 
to make Metallgesellschaft responsible for the proper use and dis- 



position of these metals, because the company was an outstand- 
ing firm with "well-established" world-wide connections and was 
"strong" enough to do the job properly. 

The apparent laxity o£ the Economics Division was partially ex- 
plained by what had been happening in the United States as the 
export-import program got under way. Resistance to imports from 
Germany was developing especially from businesses that would be 
facing German competition in the fields of light industrial products. 
These products had dwindled in export markets in the prewar years. 
By the summer of 1947, Secretary of Commerce Harriman and other 
high government officials had to tour the country making speeches 
to chambers of commerce and other associations to persuade business- 
men that the United States must be willing to accept imports from 

Under the threat of "resistance" from firms in the United States, 
the export-import program was being shaped around specific con- 
tracts* First, the industries would be started ^'running," and then 
special contracts would be negotiated between American merchants 
and German manufacturers for the production of specific goods. 
In this way, it was said, the goods could be marketed in the United 
States without coming into conflict with pre-established marketing 
arrangements among American companies. 

Here was a driving force that could, in itself, do a great deal to 
press the lines of German recovery back into the old patterns and 
grooves. To the reluctance of military government officials to change 
was added criticism from business interests in the United States if 
they did change. Through it all, representatives of particular com- 
panies — those with prewar property interests in Germany — came 
through in an ever-increasing stream. They not only looked, but 
they stayed to ask what plans military government had for the 
future of their companies. After I had resigned from military gov- 
ernment, I was asked by newsmen at La Guardia field on July 24, 
1947 for a statement. I cited among other things the pressure of 
specific American companies like General Electric and General 
Motors to prevent changes in Germany that might affect their 
properties and business interests. The next day*s press quoted Gen- 
eral Clay's reply from Berlin: "I wish that General Motors and the 


Others could read that [charge] so I would cease being accused of 
not having given them an even break.'* 

A single isolated case might have had no visible effect on the 
shape of the postwar economy. But as the occupation went on, we 
saw more than a scattering of plants revived and put into full pro- 
duction, not because their product proved necessary to the orderly 
development of the economy and the best use of the scarce materials, 
but because the plants happened to belong to the Singer Sewing 
Machine Company, the International Harvester Company, the Chi- 
cago Pneumatic Tool Company, or General Motors; or because 
Swedish SKF, or Dutch AKU, or British Unilever, or American 
Bosch, claimed an interest In the German company; or because an 
American, Belgian or British company had had a prewar arrange- 
ment that made it desirable to get military government to reopen a 
particular line of German production. 

This became what might be called a "Christmas-tree'* economy. 
It differed remarkably from Colonel Wilkinson's picture of a strictly 
controlled system in the hands of the "ablest" men. Germany could 
scarcely be pictured as a clear, flat plain on which men of vision 
executed an efficient and orderly reconstruction, taking account of 
the realities of war damage and the postwar needs of the entire 
European economy. Special economic revivals were popping up all 
over the place. The plants of the favored firms were all decked out 
with priorities and ornamented like Christmas trees. Around 
them clustered the little satellite industries, protected by "hands off" 
and "do not touch'" signs. Military government officials were sup- 
posed to work out their economic programs without disturbing any- 

Though the "Christmas trees" were exempt from tight control, the 
garden variety of Germans who were not of the industrial combines 
felt the full force of the controls. Military government, almost from 
the beginning of the occupation, put into the hands of "the Germans 
themselves" the strategic power to allocate coal, transport, and elec- 
tricity. At the insistence of the Industry Branch, old licensing laws 
were kept to give the German authorities a better grip on the use 
of production facilities. 

By 1947, our files contained hundreds of complaints from inde- 



pendent German businessmen that although their plants were ready 
to operate, they had been refused the necessary license. 

A glass works in Bavaria was ready to turn out glass containers, 
needed to preserve the fruit and vegetable crop; but the licensing 
authority was in the hands of a man who came from a rival firm. 
That firm's factory had been bombed out. Only one license to engage 
in this type o£ business was to be issued, according to the "policy" 
of the German administration in Bavaria, and the license had already 
been granted to the firm which was not yet ready to produce. 

An artificial-limb manufacturer who had been bombed out of 
Hamburg and had migrated to Munich in 1945 could not get: a 
license to manufacture or repair artificial limbs in Bavaria. The 
appropriate official in the Economic Ministry consulted with the 
trade association of Bavarian artificial-limb makers, as required by 
the licensing law; and the association said there was no more room 
in the business. The outsider from Hamburg could not even get a 
license to repair artificial limbs of his own original manufacture, let 
alone make any new ones, 

A master plumber who had been bombed out of Rostock and 
ended up in a small Bavarian town, wanted to help his friends 
repair their plumbing. Local plumbers had a backlog of work to 
keep them busy for a generation, at least. But when the newcomer 
tried to buy ceramic fixtures, tiles, and drain piping, the head of the 
trade association called all the possible suppliers and ordered them 
not to sell any material to this outsider. 

Between 1946 and 1948, while licensing restrictions kept up bar- 
riers against newcomers, many more "Christmas trees" dotted the 
German countryside, all with well-known trade-marks. Late in 1948, 
just before the scheduled arrival of an investigating commission 
appointed by the Secretary of the Army, military government put 
mto effect a directive we had prepared back in 1946 to order the 
repeal of the licensing laws. The policies cited in support of the direc- 
tive had been unchanged since the beginning of the occupation. 
Military government officials offered no explanation for the two- 
year delay. 


Double, Double Toil 

LATE in October 1946 the Senate War Investigating Committee, 
then headed by Senator Kilgore, sent George Meadcr, the com- 
mittee's counsel, to investigate charges that some of the important 
policies for the occupation were not being carried out. General Clay, 
displaying his usual courtesies to important visitors, welcomed the 
investigators and instructed all of us at the Saturday morning con- 
ference to co-operate fully in the itivestigation and withhold noth- 

One of the first things the investigators discovered was that nego- 
tiations having equal effects on the occupation were being carried 
out in two quite different channels* If any branch or division 
wanted to initiate action of any sort, the staff had to prepare a 
"staff study." This required a written discussion of the problem, 
together with annexes containing supporting documents, and a draft 
of the letter to be signed or the order to be issued. All of these papers 
had to be circulated to other interested divisions and branches for 
^'concurrence" before they went to the head man for signature. Some 
division directors found this formal procedure cumbersome. They 
had developed a channel of their own and transacted important 
official business simply by dispatching letters on a "Dear Biir or 
"Dear John" basis to former business associates and friends in the 
government. Military government had developed a split personality. 
Outwardly, most policies remained exactly as they had been from 
the start of the occupation; but the principal opponents of reform 
policies began quietly to propose moves that went in the contrary 
direction, as if they were confident that changes were coming. 

After the Republicans won a congressional majority in the No- 



vcmber elections of 1946, the Republican members o£ the War In- 
vestigating Committee released Mr. Meader*s preliminary report, 
together with the hundreds of documents the investigators had 
picked up at Berlin. The findings of the Mcader report began to 
break in the American press on December 3. The full details did 
not reach Berlin for several days. When they did, it was clear that 
military government was operating in such a way that serious 
clashes over policy had continued for many months without being 
resolved. This was particularly true of the policy of breaking up 
economic concentration. 

Actually the question was not whether our colleagues were work- 
ing on or off the record in favor of policy changes, but whether we 
had a right to insist that the policy — whatever it was — should be 
clear, and that public statements about what we were doing should 
be accurate. 

On December 7, 1946, fifth anniversary of the day President 
Roosevelt said would live in infamy, Philip D. Reed, chairman of 
the board of the General Electric Company, arrived at Berlin on a 
mission he had undertaken at the request of W. AvercU Harriman, 
Secretary of Commerce. Secretary Harriman wanted to know what 
the Commerce Department could do to help military government 
with its economic program. General Draper arranged a meeting 
with Mr. Reed in the office of Jack Bennett, General Clay*s financial 
adviser. The purpose was to discuss obstacles which stood in the 
way of German recovery so that Secretary Harriman, as a mem- 
ber of the cabinet, could help remove them. 

After preliminary remarks to the effect that the limitations im- 
posed by the Trading with the Enemy Act, the denazification pro- 
gram, and the decartelization policy were a handicap to German 
recovery — however necessary they might be for other purposes — 
General Draper introduced Richard Spencer, head of the Patent 
Section of the Legal Division. Since the Patent Office is part of the 
Commerce Department, Mr. Harriman would be interested in the 
defects in American plans for dealing with German patents. Mr. 
Spencer launched into a twenty-minute diatribe against a policy 
which was actually that contained in a directive approved by Pres- 
ident Truman on September 17, 1946. He did not indicate, however. 


that it was the official policy which he was attacking. He expressed 
himself as setting out the "military government" view on patents. 

At the end of this speech General Draper turned to me, five min- 
utes before we were to go to lunch, and said: "Now Mr. Martin has 
some other views on patents, and perhaps we ought to hear 
from him.*' These "other views," thus introduced as though they 
were a personal product, were those contained in the presidential 
directive. Even this brief discussion was interrupted by a cross-fire 
from General Draper and Mr. Spencer; and when I talked to Mr. 
Reed after the meeting, he was still quite confused about what the 
directive had told military government to do. 

The purpose of the patent policy was to set the conditions for 
reopening the German patent office without allowing patent pools 
and restrictive patent licenses to give German groups a new whip 
hand in world economic affairs. The American forces at Berlin 
were instructed to work out a four-power agreement on changes 
in the German patent laws before the patent office was allowed to 
register new inventions and grant the inventors the usual monop- 
oly of production and sales. The German patent system had devel- 
oped without a context of other laws, such as antitrust laws, to 
protect the public against discriminatory uses. The Patent Section 
of our military government objected to the inclusion o£ anything 
in the German patent law that was not already in the patent laws 
of the United States, even though the policy had been framed at 
Washington with full consideration of the great differences be- 
tween the German and American legal systems. 

Mr. Reed*s report to Secretary Harriman recommended a com- 
plete review of the patent policy. After months of argument at 
Washington, however, the Executive Committee on Economic 
Foreign Policy in May 1947 reaffirmed the basic directive. In the 
meantime the other elements at Berlin, especially the French and 
British, had used the dissension in the American ranks to carry the 
argument in another direction. 

We had already run into trouble over the I.G. Farben patents in 
the latter part of 1946, because the French showed a growing dis- 
trust of our intentions. According to one report prepared by a com- 
mittee of the French National Assembly, they felt that we were talk- 


ing about breaking up the Farben combine, while other Americans 
were getting ready to make a good thing out o£ exploiting the Farben 
processes without having to pay patent royalties. The British, too, 
had ideas about what we intended to do with the Farben patents- 
The presidential directive had instructed us to eliminate the restric- 
tive licensing schemes of firms like LG, Farben. If we could not get 
agreement on a less drastic means, we were to suggest complete 
dedication of the patents to the use of the German public. But the 
British evidently suspected us of trying to maneuver them out of 
control of the "Bayer" processes, centered in the big British zone 
plant at Leverkusen, as part of a drive to capture markets for 
American firms. So they held that the patents were valuable assets 
of I.G. Farben, and that we had no right to "destroy" their value 
by eliminating the monopoly feature. 

Both the French and British LG. Farben control officers asked 
me how I came to hold views on patents which were so different 
from those of my colleagues in the Economic and Legal Direc- 
torates. Puzzled by the split in the American camp, they insisted on 
complete restoration of the patent privileges of the LG. Farben pool. 
Compromise was practically impossible because they felt that if 
they held on long enough the American position w^ould change; 
and if they did not, they might in some way be "outfoxed.** 

The Soviet control officer, Colonel A* C. Bayar, strongly supported 
the view that the Farben patent monopolies would have to be 
eliminated. However, he appeared to find the split on the American 
side more amusing than sinister, partly because Soviet foreign trade 
was little concerned with ''patented'' items, and partly because his 
wartime position with the Soviet Purchasing Commission in the 
United States had made him familiar with family squabbles in 
American government agencies. 

With the inconclusive end of our patent discussions in Jack 
Bennctt*s oiJice that December day in 1946, our entire group ad- 
journed for lunch at the Harnack House. We were joined by the 
other branch chiefs of the Economics Division and by Sir Cecil 
Weir, who had succeeded Sir Percy Mills as president of the British 
economic subcommission. An undercurrent was provided by Colonel 
Lawrence Wilkinson, head of the Industry Branch, who had a copy 


of the New Yor\ Times for December 5, 1946. A Washington dis- 
patch described in some detail the documents and copies of corre- 
spondence which I had furnished the Meader investigation at 
Mr. Meader*s request. Some of these were decidedly critical of the 
Economics Division's handling of developments in the cartel field 
up to that time. General Draper showed no outward sign of the 
agitation he later expressed over my statements, however, and the 
conversation turned quickly to the issue of German currency reform. 
This was rapidly supplanting the cartel and patent policies as a sub- 
ject of debate. 

The contingent from Economics undertook a characteristically 

bold treatment of the fiscal policies that were getting in their way. In 
the case of currency reform the American official directives from 
Washington had proved inconvenient to the Economics Division, 
even though actual negotiations were in the hands of the Finance 
Division and Financial Directorate. The head of the Finance 
Division, who had not found it hard to understand what Washing- 
ton wanted to accomplish, was somewhat surprised to hear several 
from Economics suggesting the possibility that Sir Cecil Weir 
might arrange to have certain points raised by the British in the 
four-power discussions, inasmuch as the directive from Washington 
would prevent the Americans from raising these points directly. 
It would then be possible to cable V/ashington to the effect that 
the British were insisting on a different solution, and to ask for 
authorization to change the American position in order to reach a 
compromise with the British. 

As I listened to this talk certain phrases from the New Yor}{ Times 
dispatch of December 5 kept coming back to me: **The documents 
. . . seemed to represent a cross-section of the American way of 
doing things in Germany — virtues, faults, bungling, conniving, 
suspicion and loyal adherence to the American program. That is 
what access to a good sampling of the papers indicated today." 

General Clay returned to Berlin from Washington in the middle 
of December at the conclusion of the bizonal merger talks. He had 
also appeared before the Kilgore Committee to answer questions 
that rose out of the Meader report. We discussed briefly the charges 
I had made during the Meader investigation, which were the same 



as those we had discussed on several occasions throughout the 
summer and fall of 1946. Genera! Clay wanted to know if it would 
not be possible to avoid further public outbursts on these issues. 

I could suggest only one way, which was to have all matters 
that concerned economic concentration and cartels referred to the 
Decartelization Branch. We did not like to find out about such 
matters through chance, after action had been taken by the Eco- 
nomics Division. The issues would be kept clearer if decartelization 
were removed to another division rather than kept in Economics, 
where the program was a constant source of friction. I offered to 
resign if that would help to carry through a reorganization with less 
embarrassment to General Clay. He declined the resignation be- 
cause, as he said, "I like you and I like your work.*' But he insisted 
the turmoil over the Meader report had made a reorganization im- 
possible, at least for the present. General Clay had no suggestion 
for improving our situation other than that, as a first step, we do 
everything possible to bring out a satisfactory decartelization law. 

General Clays reluctance to bring the outstanding issues to a 
head was disappointing. A question of executing or not executing 
written instructions from Washington was being silted over by 
what some people might come to consider personal feuding. But 
in the end we did have a ^'standstill" agreement to focus the argu- 
ments onto specific issues. The Economics Division was to give the 
Decartelization Branch an opportunity to comment on criticisms of 
the cartel policy contained in official papers. Previously, "action" 
papers prepared in other branches had contained statements that 
the position of the Decartelization Branch was this or that, usually 
attributing to us an unreasonable position which our staff would 
have been the last to adopt. In some cases, cabled inquiries from 
the State Department about discussions in our four-power com- 
mittees had been answered without any help from the participants. 

Imperfections in the standstill agreement became evident very 
soon. Philip D, Reed's report to Secretary Harriman attacked the 
decartelization policy as the work of "extremists" from the Depart- 
ment of Justice, and ignored the fact that the policy itself had been 
set down by the Big Three at Potsdam. The Reed report went on to 
say that decartelization was hampering German recovery, but cited 


no evidence to support the statement. Its conclusion was that the 

enactment of a law to prohibit "excessive concentration of economic 
power" in Germany v/ouid be harmful and unnecessary. The pro- 
hibition of "cartels" was an idea peculiar to the United States, and 
was not shared by the British, French, Russians, or other Europeans. 
Until an international agreement on the subject should be reached 
through the United Nations, Germany ought not to be saddled 
with ^'antitrust" laws. 

Copies of this report, almost every statement of which was easily 
subject to refutation, were received by General Draper but not 
circulated to the Decartelization Branch. I got a copy later from the 
Finance Division. 

General Clay, on his return from the bizonal talks at Washington, 
appeared to consider himself bound to change course and issue no 
decartelization law for our zone %vithout the concurrence of the 
British. In General Clay*s absence, General Draper had initiated 
some discussions with Sir Cecil Weir to see whether a compromise 
law could be worked out. He had reported these talks by cable to 
Washington. This, in turn, appears to have led Will Clayton or 
members of his stalT to suggest that unilateral action for the United 
States zone should be abandoned. Though both the French and 
Soviet military governments were preparing to issue laws similar 
to the three-power draft of August 1946, we had to start drafting a 
new version in consultation with Sir Cecil Weir and Brigadier 
Oxborrow* As a result, the French broke off the attempt to stay 
Within the terms of the draft which had been agreed upon by the 
French, Soviet and American delegations in the four-power dis- 
cussions. They later issued a law of their own, framed in terms of 
French law, while the Soviets likewise set up a different system. 
That was the end of any likelihood of arriving at a uniform treat- 
ment of the problem, though four-power discussions continued for 
another year. By August 1947 those discussions had produced a 
new three-power draft agreeable to the American, French and 
Soviet governments and much closer to the British version. This was 
a further attempt to meet British objections by drafting a four- 
power law whose chief provisions were modeled on the British 
military governments own drafts. But the British continued to 



disagree over methods of carrying out such a law, and this final 

attempt at four-power agreement failed. 

We had no difficulty in reaching agreement with the British on a 
common text of a law to be carried out in the two zones of "Bizonia/* 
once the decision had been made by General Clay to drop the idea 
of a "mandatory" law. By February i, 1947, we had worked out with 
Brigadier Oxborrow a new draft law prohibiting specific practices 
in restraint of trade and also providing for investigation of all Ger- 
man firms employing more than ten thousand persons. If any such 
firms were found to represent an "excessive concentration of eco- 
nomic power/' they were to be reorganized and separated into 
workable but independent economic units. This law was issued on 
February 12 as Military Government Law No* 56 for the United 
States zone, and a similar text as Ordinance No, 78 for the British 

Early in February, opposition from an older and more familiar 
quarter showed itself. We had been so absorbed with details of 
passage of the law that the chief problem — controlling the main- 
spring of German economic warfare — had been briefly eclipsed. The 
reminder came with Herbert Hoover's visit to Germany at the 
suggestion of President Truman. Though he had been asked princi- 
pally to study the German food problem^ Mr. Hoover fanned out 
very broadly into all phases of economics and politics. A restate- 
ment of the traditional German resistance to reform was the result. 
The specific problems of feeding occupied only one part of his 
report. The principal focus was on general economic problems, and 
on these the advice came from the late Gustav Stolper, former Ger- 
man economist, who was at Mr. Hoover's elbow throughout 
the trip. 

At Berlin there was the usual "briefing" of the Hoover party by 
the Economics Division, with the bulk of the time allocated to 
problems of German reconstruction and a brief period at the end 
for problems of economic power. This time there was a difference. 
After representatives of the Industry and the Trade and Commerce 
branches had made their usual remarks about the hampering effect 
of the anticartel program, the Decartelization Branch representative 
rephed by describing the new law. Thereupon Herbert Hoover 


remarked that he could see nothing wrong with such a law, and 
thought an "antitrust law" might be a very good thing in Germany. 

After the "briefing'* Dr. Stolper showed some agitation over Mr. 
Hoover's remarks. He circulated among the group, arguing that the 
new law was a **very bad'' thing for Germany. It was just like the 
denazification policy. The main job of denazification had been done 
by Hitler himself w^hen he committed suicide. Even the hanging of 
the other top Nazis had gone too far. The same was true of the 
cartels and combines. The war had ended Germany's ^'concentration 
of economic power." Decartelization and other such reforms were 
in reality aimed at destroying Germany and the German character, 
including the many good things in the German tradition. 

The text of the Herbert Hoover report of 1947 did not reflect any 
of Mr. Hoover's favorable remarks about ^'antitrust" laws. The 
report concluded that concessions must be made to the old-line 
financiers and industrialists in order to obtain the help of their 
management abilities in European recovery. The "reform" policies 
showed up as deterrent to recovery^ 

At the time of the Hoover report, the fear that the decartelization 
law would stop German recovery was like a horse's fear of a scrap 
of paper. Law No. 56 was still nothing but paper and printer's ink. 
Until enforcement machinery was set up no German was obliged 
to do anything. The law was a declaration of intention to carry out 
something that was already in the Potsdam Agreement and in the 
Joint Chiefs of Staff directive. 

Wc began the long process, again through the "staff study'* 
routine^ of getting the concurrence of the rest of the Economics 
Division on proposed procedures to carry out the law. We could 
see at the beginning that this might be just as big a job as getting 
approval of the text of the law itself; so we divided up the work 
among the different parts of our staff. The deputy chief, Phillips 
Hawkins, undertook to work out with the British and with the 
Economics Division the organization of a bizonal enforcement 
agency and a set of procedural rules for bringing cases under the 
law. The four assistant branch chiefs undertook more specific jobs. 

Johnston Avery, who had joined our staff at Berlin from his 
former position as executive officer of the Antitrust Division, pre- 


pared an enforcement program. Creighton Coleman carried the 
four-power negotiations and also prepared drafts of supporting 
legislation that would have eliminated large holding companies, 
interlocking directorates, the issuance of "bearer** shares, and other 
foundations o£ concentrated power. Captain Francis W. Laurent, a 
retired naval officer from the Navy Department's legal division, 
began to prepare draft orders to require the reorganization of the 
outstanding big combines in our zone. Colonel Richardson Bronson, 
deputy I.G. Farben control officer, was to carry further the Farben 
reorganization. Finally, all the staff was to contribute material to a 
four-volume Report on German Cartels and Combines, to be 
edited by Charles C. Baldwin, formerly of the Economic Warfare 
Section of the Department of Justice. 

Our objective was to prepare as quickly as possible some actual 
cases involving German combines whose structures and past history 
made them unquestionable examples of the "excessive concentration 
of economic power." We would push for definite action to re- 
organize these combines, and at the same time prepare a full discus- 
sion of all the big combines and their place in Germany*s distorted 
industrial development of the period between wars. We wanted to 
throw as much light as possible not only on the problem but also 
on what we were trying to do» 

We had discovered an almost pathological fear of the light of 
publicity in some parts of the Economics Division. Men who basked 
in press handouts and glowed warmly under the light o£ favorable 
publicity turned pale when confronted with a pertinent direct ques- 
tion from a seasoned press correspondent. Delbert Clark, head 
of the Berlin bureau of the New Yor\ Times, was such a corre- 
spondents After watching the reaction in the Economics Division 
to a series of Clark's stories, one observer remarked, "They 
would cheerfully give three weeks* rations of PX cigarettes to avoid 
being mentioned in one of Delbert Clark's dispatches." A carton 
of PX cigarettes at the time had a barter value of about $100. An- 
other correspondent who had covered the earlier phases of the 
occupation with considerable effect had been Edd Johnson of the 
Chicago Sun. Johnson's dispatches had cited case after case where 
official acts did not jibe with official policies. His final interview 


with Russell Nixon in January 1946, just before Nixon left Berlin, 
became a classic in blowing the Ud. 

In our favor was the fact that the official policy in our field had 
remained unchanged for the first two years of the occupation, and 
had been restated on many occasions by General Clay even after 
the conditions of the occupation had begun to change. We knew 
that if the policy was sound and if the program was sound, either 
we would get some results or someone sooner or later would want 
to know the reason why. 

Three volumes of the four-volume report were in rough draft 
form by March i, 1947; but we then discovered that there would be 
difficulty in publishing such a report. It would have to be "edited" by 
the Reports and Statistics Branch of the Economics Division and 
then cleared with **all interested branches and divisions** before 
publication could be approved. This might take months, and even 
then the Economics Division would have the final word on what 
material was included. We also found that we faced a possible "stop 
order" preventing the staff from doing anything further on the re- 
port until it had been cleared. At diis point we commandeered every 
typewriter and typist in the branch and in one day cut five hundred 
eighty-four mimeograph stencils to get out a draft copy of the full 
report. Charles Baldwin found a German print shop to bind some 
two hundred copies, which we immediately distributed as widely 
as possible to government agencies. It was a "draft submitted for 
comment only," and not an "official" document. 

Early in April 1947, the State Department asked for my return 
to the United States on temporary duty to discuss our report and 
our proposed program of action under Law No. 56. I flew back and 
spent several weeks on these discussions. It was apparent from the 
first that the changes in Congress after the November elections of 
1946, more than the changed conditions in Germany, were re- 
sponsible for the growing confusion on German policy matters. 
The mood was not so much one of change as of indecision. 

We needed an issue that would crystallize the points of indecision. 
Was the United States still opposed to the centralization of German 
economic power? On May 3, a Berlin dispatch announced the end 
of another in a series of tours of Germany and Austria which the 


War Department had been sponsoring to enlighten influential 
people about the problems of occupation. In this case, as the New 
Yor^ Times put it, "Fourteen top business executives o£ the United 
States concluded today a two weeks* tour of the key cities of Ger- 
many and Austria. They made the trip at the request of Secretary 
of War Robert P. Patterson to study German industry and the 
Military Government's industrial program." 

The War Department on May 8, 1947, released the report prepared 
by the fourteen top business executives. The statement began by 
aiHrming their "complete and unanimous agreement" with the con- 
clusions of the Herbert Hoover report. On the basis of their two 
weeks' tour they found it a "masterful summary of the situation in 
Germany." Then the executives presented their first recommenda- 
tion. They said: 

We tiow set forth several major issues with which the Office 
of Military Government has to deal, together with our comments 
and suggestions thereon. 

T. Decartelization. Law 56 and Regulation No. i embody a 
series of controls and regulations^ many of which represent eco- 
nomic principles quite new to the German mind and to the past 
industrial development of the country. 

Since we are now confronted with the urgent necessity of 
bringing about as rapidly as possible recovery of the economic life 
of a starving people — it is our belief that too strict adherence to 
tlic Law in its administration will seriously retard this primary 

With no desire to criticize the principle of this law as it has 
been written — we do, however, recommend, if at all possible, that 
the enforcement of these regulations be postponed, or at least 
sufastantiaiiy modified, until the industrial economy is in a rea- 
sonable state of operation. 

Other recommendations included the need for "incentives" to 

German industry, agriculture and labor, the promotion of exports, 
the downward revision of reparations, the end of denazification, and 
change in the level of industry. 

I discussed this report with the Attorney General, Tom Clark. 
A few days later Mr, Clark was approached on another matter by 


M- S. Szymczak, a member of the Federal Reserve Board who had 
been serving in Germany first as head of Trade and Commerce 
and later as director of the Economics Division after General Draper 
moved up to become Economic Adviser to General Clay. Among 
other things, Mr. Szymczak raised the question of modifying tlie 
antitrust decrees in the Merck case so as to allow the Merck com- 
panies to co-operate on penicillin production in Germany* Mr. Clark 
in return suggested that there should be first a general discussion of 
the decartelization program. He asked Mr. Szymczak to arrange 
an informal conference with representatives of the State and War 
Departments, to be held in the Attorney Genera Is office on May 20. 
Willard Thorp, Assistant Secretary of State for Economic Affairs 
and two members of his staff attended for the State Department, 
and two men from the Civil Affairs Division for the War Depart- 
ment, in addition to Mr. Szymczak and myself. 

At the end of a brief discussion, the Attorney General asked me 
to prepare a memorandum setting forth the views I had just stated 
and with which all those present had concurred. He wanted to sub- 
mit my memorandum for discussion at a meeting oi the cabinet 
on May 22* 

In brief, I said that we wanted to know first whether the 
cartel policy had been changed, and if so, what the new poUcy was. 
Secondly, whatever the policy might be, we wanted military govern- 
ment to be instructed to carry it out instead of debating it. In 
particular, I pointed out that the report of the fourteen industrialists 
was based not on direct observation but on the "briefing" which all 
such groups had been receiving from the Economics Division at 

The Attorney General told me after the cabinet meeting that the 
members had agreed with the substance of my memorandum and 
had seen no reason for changing the government's policy on de- 
cartelization. This conclusion was then made official in a new 
version of the JCS 1067 directive, which had been undergoing 
revision to take account of changes during the two years of occu- 

The new directive of July 15, 1947 stated: "Pending agreement 
among the occupying powers you will in your zone prohibit all 


cartels and cartel-like organizations and effect a dispersion of owner- 
ship and control o£ German industry through the dissolution o£ 
such combines, mergers, holding companies and interlocking direc- 
torates which represent an actual or potential restraint of trade 
or may dominate or substantially influence the pohcies of govern- 
mental agencies. You will not, however, prohibit governmental 
regulation of prices or monopolies subject to government regulation, 
in fields where competition is impracticable. In so far as possible, 
you will co-ordinate your action in this field with the Commanders 
of other zones of occupation," 

After the cabinet meeting of May 22, I cabled my resignation to 
Berlin. I knew that the policy was being reaffirmed on paper; but 
no official notice was being taken of the fact that its execution had 
been deliberately delayed. My resignation would make it impossible 
for those in charge to attribute their delaying tactics to alleged 
**feuding" between the chief of the Decartelization Branch and 
the Economic Adviser to the Military Governor. I hoped that 
General Clay would appoint a new chief who would be, beyond 
question, persona grata to the Economics Division. He appointed 
my deputy, Phillips Hawkins, whose engagement to General Dra- 
per*s daughter had been announced during my absence. 

In a final note to General Clay on July 14, 1947 1 reviewed the Eco- 
nomics Division's record of obstruction to the program which 
General Clay himself had said he approved. I concluded by saying, 
**My decision to return to the United States was based upon a desire 
to contribute to the clarification of United States policy on cartels, 
monopolies, and concentrations of economic power. It is my feehng 
that such efforts will be more likely to succeed if they are vigorous, 
but constructive rather than recriminatory; and therefore I have no 
particular desire to engage in unnecessary argument about the past 
performance of the Economics Division imless called upon to do so." 


The Decline and Fall 

GENERAL Clay exhibited a well-developed historical sense. Yet 
a future generation of historians may find that, ironically, it was 
this sense of history, combined with the lifetime habits of a military 
career, that contributed most to the defeat of the occupation. Gen- 
eral Clay, in my first talk with him in January 1946, said that he 
was determined to make the four-power occupation succeed. He 
was convinced that failure to make four-power government work 
would be a catastrophe, and perhaps the biggest single step toward 
a third world conflict. 

The end of battle in 1945 had signaled the start of a new kind 
of war — a post-war. Germany's classical military theorist, von 
Clausewitz, is famous for having declared that "war is the continu- 
ation of diplomacy by other means/* In dealing with a Germany 
which had gone to school with von Clausewitz for generations, we 
knew that, conversely, a post-war is the continuation of war by other 
means. Since Bismarck, wars and post-wars have formed a con- 
tinuous series, changing the quality of the events only slightly from 
year to year, with no such thing as a clear distinction between heat 
of battle and calm of peace. This post-war of the German occupa- 
tion was difierent from the '*cold war" between the United States 
and Russia, which broke out at about the same time. The latter 
complicated the diagnosis, like a man getting typhoid fever and 
pneumonia at the same time. 

In the first years of the occupation of Germany, the two struggles 
had not yet become confused. General Clay said the best contribu- 
tion we could make to peace would be to get four-power co-opera- 
tion in carrying out the agreements for the control of Germany. 


Later, others with less historical sense began to support anti-Russian 
Germans on the theory that "any enemy of Russia is a friend of the 
United States." The two wars became interwoven, and men who 
saw no difference came to make up the effective bulk of General 
Clay's staiJ. When the Economics Division chose to ignore agree- 
ments to limit heavy industry and expand light industry, this de- 
parture was ''necessary" to build up a strong Germany. When the 
French or Russians objected to economic "unity" under the leader- 
ship o£ old-line Ruhr coal and steel men, the same people held that 
failure of the French and Russians to live up to the Potsdam agree- 
ment for economic unity was an act of international bad faith. Here, 
instead of cracking down on his own staff, General Clay let the 
pendulum swing. He allowed his sense of history to tell him such 
developments were inevitable. 

On our hst day in Berlin, July 24, 1947, my wife and I invited 
General Clay to lunch with us before we left for Tempelhof. For 
about two hours we exchanged views on where everything was 
heading. It was a more illuminating kind of talk than the business 
conversations and social chatting during the previous year and a 
half. General Clay explained some of his ideas about the course of 
history, with several references to works like those of Arnold Toyn- 
bee, describing the patterns through which civilizations have devel- 
oped and changed. Among other things he mentioned that he had 
been through the last occupation of Germany, too. With his wry 
sense of irony he said that we had done a better job in the present 
occupation: within the first nine months we had made mistakes 
that were not made in the former occupation for nearly two years. 
We asked him to account for the difference. Why did it seem that, 
far from having learned a lesson from Germany's part in World 
War I, people were pressing to repeat the same mistakes sooner? 

General Clay answered that the last time, one man, Woodrow 
Wilson, pointed the objective that he wanted to reach. Even though 
Congress later disavowed the objectives and turned the policies 
about, still in the first years of the occupation it was possible to 
know what "'Washington" wanted. In this occupation, an unwritten 
law had decreed that all statements ot policy must be bipartisan, 
supposedly to avoid the possibility of repudiation of a Democratic 


administration's acts by a Republican Congress. But this meant that 
on many critical points the statements from ^'Washington** had in- 
cluded contradictory points of view. 

It was one thing, he implied, to believe in his own mind that the 
objective was clear, and another thing to charge any of his subordi- 
nates with violation of orders if they adopted different interpreta- 
tions. I knew that this much was true. For example, the policy 
against renewed emphasis on German heavy industries was subject 
to an ali-inciusive exception for acts necessary to prevent "starva- 
tion, disease and serious unrest.'* The Economics Division had in- 
voked this phrase to justify all manner of departures from the spirit 
of the Washington instructions, and to fly in the face of the Potsdam 
agreement, merely asserting that each exception was necessary to 
avoid ^'disease and unrest." 

General Clay did not flatly admit criticism of his subordinates, 
and especially did not mention the Economics Division; but the 
implication was that he had tolerated the undercutting of his own 
policies because of these verbal formulas. The total effect was failure 
to carry important objectives; but each step had had a plausible 
ground in the wording of the directives. General Clay offered no 
explanation of his failure to cut through the wordy arguments and 
put the official policies back on the track. We left Germany with 
that question unanswered. 

It was a fair guess that confusing the cold war with the post-war 
was leading to competitive wooing of the most strongly entrenched 
German elements. That would mean the end of reforms — not 
merely the end of dccarteiization and denazification, but of land 
reforms, intensive agriculture, the rebalancing of heavy and light 
industry, political decentralization, re-cducation, and the others. 
But the "civilian" and "military" habits under such circumstances 
are sometimes different. A civiHan may fight back on a matter of 
principle; and if defeated will resign. The military habit is to argue 
back until stopped by a direct order from higher authority, and 
then knuckle under. General Clay, sensing a swing of the pendulum 
or a wave of the future, had held his fire in cases when he, as "higher 
authority," had the power to give a direct order. As a result he was 
steadily losing both civilians and ofHcers who had been in charge 


of the "reform" programs. The fights for the reform programs 
looked like mere quarreling if the opponents of reform were not 
declared "wrong." Yet the reform poUcies remained ^'unchanged/' 
while the reforms were totally blocked. 

My own resignation made me the third director of the cartel pro- 
gram to withdraw after what newsmen persisted in describing as a 
"bitter feud." Colonel Bernstein and Russell Nixon, my predecessors, 
had had the same experience. But the cartel program was not the 
only one stopped in that way. Dr. John H. Canning, deputy chief 
of the Food and Agriculture Branch, left his position in August 
1947, declaring that the farm program had been, completely mis- 
managed through lack of authority to carry out reforms. His chief, 
Brigadier General Hugh B. Hester, left a little later at the end of 
a long but unsuccessful struggle to establish a food program in line 
with the directives. General Hester had been one of the most out- 
spoken oiHcers around General Clay's table from the beginning of 
the occupation* He finally applied for an army assignment to another 
command after General Clay disapproved his basic program for 
increasing the productivity of farms in our zone. Dr. John W. 
Taylor, president of the University of Louisville, resigned as chief 
of the Education Branch after finding every pathway blocked. While 
resignations took many, reductions in staff took many more. When 
divisions like Economics were ordered to reduce their total staff, the 
"reform" agencies took the biggest cuts. 

Even the few steps taken to rebalance heavy and light industry 
bogged down. General Clay in 1946 had halted all but a minimum of 
dismantling and removal of plants from the American zone under 
the reparations agreement, and the British did likewise in their 
zone, until the effects of disagreement with Russia over ^'economic 
unification" should be determined. In 1948 British and American 
authorities announced that 682 plants, worth about $203,000,000, 
would be made available for reparations as the first step in the 
delayed reparations program. Sir Brian Robertson, the British Mili- 
tary Governor, pointed out that these removals were so small as to 
be practically insignificant. There were approximately 50,000 plants 
in the British zone, of which 496 were included among the 682 to be 
taken from the British and American zones. He said, "Admittedly, 


some of the 50,000 are small plants — so are some of the 496." 

A wave of protest, not only from Germans, but from sources 
in America and Britain, soon stopped the program once more* 
Organized groups denounced the reparations program as uneco- 
nomic and unrealistic. General Clay this time came to the defense 
of the dismantling program. He said, "It is my own belief that a 
considerable quantity of these plants that are to go into reparations 
can, in fact, be placed in production elsewhere quicker than in Ger- 
many and, if that is true, would provide an increase in European 
production which is so essential for the economic recovery of all 
Europe." He pointed out that with the shortage of coal, practically 
all of these plants were lying idle and could not, in any event, be 
used in Germany for a long time to come. 

The shock and outrage felt by German sympathizers In the United 
States over the resumption of dismantling was shared only slightly 
by the German business community. Ernst Matthienson of the 
Dresdner Bank in Frankfurt said that when early reports leaked 
out indicating that a reparations program was to be resumed, the 
stock market fell. When the list was finally announced, however, 
"we saw that it affected a small portion of German industry. It was 
what you might call an ^agreeable disappointment.* The market 
recovered quickly/' 

Even the token removal of 682 heavy industrial plants was cut 
down. The Economic Co-operation Administration sent an in- 
dustrial advisory committee in November 1948 to examine 381 of 
the 682 plants, to see if some could be used for German recovery. 
The committee recommended retention of 167 of these, pointing 
to the "incongruity of dismantling and removing equipment at the 
same time that we are trying to promote [German] industrial 
recovery." The committee overlooked the purpose o£ the reparations 
program, which was to shift some heavy industry to other parts of 
Europe, while lighter industries were to be rebuilt in Germany. 

During 194S, the United States poured in $650,000,000 and Britain 
$70,000,000 to "prevent disease and unrest'* in Germany, and the 
Economic Co-operation Administration supplied another $400,000,- 
000 to help expand industrial production. The use of nearly three 
quarters of a billion dollars to avoid disease and unrest, largely 


through food shipments, was itself incongruous in the light of what 
had happened to the food and agriculture program. Not only did 
General Clay refuse to approve agricultural reforms, but his 
military government was not permitted to enforce the equitable 
distribution of food. In 1947 and 1948 the bizonal area had a German 
population- of 42,000,000, about 33,000,000 hving in cities and 
9,000,000 in rural areas. During this time, food raised in Ger- 
many was actually delivered from the farms to the markets at 
the rate of 1645 calorics per day for each of the 42,000,000 inhabit- 
ants, if evenly distributed* Shipments from the United States during 
this period included four and one-third million tons of food, largely 
bread grains, equivalent to 945 calories per day for each of the 
42,000,000 inhabitants. This was an over-all average of 2590 calories 
per day for all inhabitants, even including the 9,000,000 rural in- 
habitants who were normally self-sustaining. The items included in 
this count comprised the basic foodstuffs: wheat, potatoes, milk, 
meat and fats, and sugar. Other foods like vegetables, fruits and fish 
obtained in Germany simply added to the total. If military govern- 
ment had maintained an adequate staff to supervise German food 
authorities, and had done nothing more than see that these food- 
stuffs went to the 33,000,000 city-dwellers, the domestic food in the 
city markets would have averaged 2100 calories per person, and the 
imports from the United States 1200 calories: an over-all average of 
3300 calories of basic foodstuffs, more than double the "starvation" 
figure of 1550 usmlly cited. 

Yet there were food ''shortages*' in German cities. By order of 
General Clay, military government by the end of 1946 had stopped 
employing American food and agricultural inspectors, except for a 
dozen American officers and civilian employees for the whole zone. 
By the middle of 19479 spot checks in parts of the American zone 
had indicated that estimates furnished by German farmers figured 
their crops too low by as much as 60 per cent, and that actual farm- 
to-market deliveries varied quite substantially from official estimates 
and quotas. Thefts of imported grains were running as high as 10 
per cent in transit between the ports of Bremen and Hamburg and 
the cities of the Ruhr. 

German officials had nothing to gain by antagonizing their con- 


stituents with, enforcement activities, especially when the only effect 
of their bungling was to increase donations of food from the 
United States. Early in 1947 General Clay told the German min- 
isters-president at a meeting in Stuttgart that they had bungled the 
food program and that the degree of co-operation among them- 
selves and with the military government was 'less than at any time 
in the past two years." 

A battle was being waged among the occupying powers to see 
who could win the support of "the Germans themselves." In Bi- 
zonia, a German economic administration was vested with con- 
stantly widening powers to shape the industrial and commercial 
development of the area under United States and British control, 
with the military governments restricting themselves to "observa- 
tion and advice.'* The effect in Germany was the same as if the 
original architects of the New Order had been in charge* 

The bizonal German administration was not long in becoming 
the rallying point for extreme conservatives and others committed 
to a plan of centrahzation. By the spring of 194(8, Robert Pferd- 
mengcs, the Cologne banker, a long-time associate of Franz von 
Papen, Friedrich Flick and Hjalmar Schacht, and the richest man 
in postwar Germany, was reported to be in the midst of negotia- 
tions with the French de Wendel family to arrange joint Franco- 
German ownership in certain Ruhr industries. Two years later he 
was one of the first men named by Chancellor Adenauer to negotiate 
with the French when Foreign Minister Schuman proposed a coal 
and steel pool, supposedly as a means of avoiding the old cartel. 
While he did not take an official post in the bizonal administration, 
Pferdmenges remained very close to his German associates who did, 
including Ernst Helmuth Vits of the rayon combine and Heinrich 
Dinkelbach of United Steel, both of whom assumed control of their 
respective fields for the new administration. 

Baron Freiherr Edouard Otto von Maltzan, who became chief of 
the export-import division of the economic administration, had 
served as a member of the Franco-German armistice commission. 
Previous to that time, he had served in the foreign affairs depart- 
ment of I.G, Farben, under Max Ilgner. 

When the military government approved setting up a bizonal 


German bank, the Bank Deutscher Lander, the German board of 
directors proposed Hermann J. Abs, of the Deutsche Bank, for 
president. For chairman of the board they proposed August Schnic- 
wind, formerly a director of the Reichsbank under Dr. Schachc* 
Schniewind in April 1948, when the new bank was being set up, 
was serving as liaison officer for the European Recovery Program 
under the bizonal economic administration. Both Abs and Schnie- 
w^ind decUned to take posts in the new bank unless they were given 
the power to override the eleven-man board of directors in certain 
cases. Military Government balked at going quite that far; but 
Schniewind then became the chairman and Abs the deputy chairman 
of the Reconstruction Loan Corporation, a government corporation 
with power to select the private firms that were to get loans for 
industrial expansion. 

Dr. Johannes Semmler was one of the few whose opposition took 
a form that General Clay's military government v^^ould not tolerate. 
Dr. Semmler was ousted as chief of the bizonal economic adminis- 
tration after he made a violent public speech denouncing the policies 
of the bizonal occupying forces. 

Dr. Schacht, the financial mastermind of the Nazi era, was 
acquitted at Nurnberg in 1946 of charges that he had participated 
in waging "aggressive war.'* His contribution had been the plan 
of economic war that set the stage for the shooting war; but he 
had left the Reichsbank before the shooting began. One of our 
men, Richard Kirby of the Dusseldorf detachment, interviewed 
Schacht at the prison in Stuttgart where the financial doctor was 
awaiting "denazification." Schacht said that if he were given three 
weeks, with access to his personal files and thirty or forty sheets of 
paper, he could present a plan for postwar German recovery that 
would not cost the occupying powers a dollar. He refused to go 
into details unless he could talk directly with officials at the top 
who would have power to put his plan into effect. To Kirby he 
would give only a brief sketch. 

In outline, Schacht's idea was an economic union of Germany 
with other European countries, with some control of prices but 
without the general lowering of trade barriers which characterizes 
a ^'customs union.** Germany would become the industrial center 


of such an economic federation, and would produce machinery and 

heavy equipment in exchange for food and consumer goods. Under 
this plan, American and British interests would be admitted to joint 
ownership with the former German owners and managers of the 
big industries, especially in the Ruhr. This was to be "international 
control of the Ruhr" in reverse, with a German group taking the 
key position in an international organization that would control all 
basic industries of western Europe. 

Though Dr. Schacht's plan was not immediately accepted by the 
occupying forces, Schacht himself was declared by the American 
military government in 1949 to be eligible for responsible admin- 
istrative posts in German agencies. The position taken by the 
western German government in negotiations with the French over 
the Schuman plan in 1950 bore a striking resemblance to Schacht*s 
ideas about Germany's place in a European economic union, 

The increasing boldness of German proposals in the later years 
of the occupation went along with the growing uncertainty of 
American policies. During the first years, while many things that 
were happening seemed inconsistent with the objectives of the 
occupation, the guiding policies were said to be unchanged. By 
the end of 1947, the arguments for a "new policy" came out into the 

Early in 1947 a cable came from the War Department to Genera! 
Clay with the news that Lewis H. Brown, chairman of the board of 
the Johns-Manville Corporation, a firm of the Morgan group, pro- 
posed to visit Germany to ofTcr advice about how to get German 
industry on its feet* The reply cable from Berlin was a polite 
demurrer, indicating that General Clay already knew his job and 
suggesting that Mr* Brown's proposal should first be discussed with 
Frederick L. Devereux who was still in Washington recruiting 
personnel for high military government positions. Shortly thereafter, 
Mr. Brown made his trip into Germany with General Clay*s ap- 
proval. This visit was especially significant because it was the only 
visit by a supposedly private businessman to eventuate in a semi- 
official "report** of such sweeping dimensions. 

In the fall of 1947, Mr. Brown published his Report on Germa72y, 
which he introduced as follows: "Learning that I was coming to 


Europe on a special trip, General Lucius D. Clay suggested that I 
spend as much time as possible in Germany to get first-hand in- 
formation as a basis for a report on what should be done to get 
German industry on its feet and off the backs of the American 
taxpayers as soon as possible* ... In view of the urgency of the 
problem, I could not, as a patriotic citizen, refuse to take the time 
from my scheduled trip for intensive study of the German problem." 

The Brown report repeated conclusions that had already become 
familiar as the outcome of briefings at Berlin. But this time a 
new note was added: the recommendation that German industry, 
controlled by its former managers, should be built into a powerful 
bulwark against Russia. The report pointed up the assurance given 
to Mr. Brown by a number of leading German industrialists that 
in the event of war with Russia, the Germans would be on the side 
of the United States. 

The Brown report was, technically speaking, unofficial. But the 
year 1947 marked a turning point. Officially the purposes of the 
German occupcition were those set forth in the revised Joint Chiefs 
of Staff directive of July 15, 1947, approved by the President. Ac- 
tually, the occupying powers, through a curious parallelogram of 
forces centered in Germany, were doing things for Hitler's New 
Order that Hitler himself had never been able to do. Both sides of 
the cold war were openly feeding German nationalism. Both were 
building up industrial potential, the Russians offering full employ- 
ment to workers, Britain and the United States offering a free hand 
to industrial leaders. What was emerging was a European economy 
dominated from a central hub of German heavy industry, with an 
outer ring of satellite areas supplying food, raw materials, and light 
industrial products. 


The Nineteen 

DESPITE the general downhill direction of reform programs in 
Germany two years after V-E Day, the program to curb the powers 
of the cartels and combines stayed for some time on a plateau. In 
July 1947, nothing seemed inevitable. The very possibility that the 
entire pattern of postwar errors from World War I might be 
repeated carried with it the possibility that public officials and the 
public would see the shadows of the coming events. Seeing them, 
they could act; and it was not too late to act* 

In declining to end my period of service with General Clay on a 
note of recrimination, I had the hope, which was shared by nearly all 
the members of the Decartelization Branch, that a constructive 
demonstration through enforcement of the new h\v might put an 
end to captious criticism. When I returned to Berlin after the cabinet 
meeting of May 22, 1947, several newsmen asked what had happened 
in Washington. I described the background of the cabinet dis- 
cussion, the probable future of the cartel program, and my own 
reasons for resigning. Lawrence Wilkinson, by that time director 
of the Economics Division, took violent exception to my statement 
that the cartel policy had been deliberately undercut. He demanded 
that I send all documents in the matter to General Clay, and even 
suggested that "disciplinary action" might be called for, not only 
because I had answered the correspondents' questions, but also 
because, while I was In the United States, I had participated in 
taking the question of cartel policy up with the cabinet. 

In my memorandum to General Clay of July 14, 1947, I declined 
to pursue such an issue. I had resigned not as part of a feud, but to 
clear the decks. After months of turmoil, we had produced, and 


General Clay had issued, a law. This law said, concretely, what the 

policy against excessive power concentrations was to mean in Ger- 
many under military government. Now, regardless of personal feel- 
ings on the winning or losing sides, the time for debate had ended. 
It was doubtful that any of the additional laws suggested in my 
memorandum of August 2, 1946, which General Clay had approved 
**in principle," would now be issued to supplement Law No. 56; but 
General Clay had appointed to head the branch a man whose 
previous official duties had not involved him in the sometimes heated 
debates inside the Economics Division, and there would be no 
pretext for opposition. We felt that since General Clay himself had 
carefully gone over the final drafts, and since Washington had ap- 
proved it as a measure falling within the official policy, General 
Clay would feel himself compelled to allow the staff to get on with 
its work of enforcing this one law. 

The staff of the Decartelization Branch was hard at work pre- 
paring findings of fact and recommendations in several specific 
cases. This was a course of action that we had agreed upon back 
in February 1947, just after General Clay approved the law. Wc 
had agreed that the main job for the immediate future was to 
enforce the law and let the results show whether or not the 
program was proportionate to the need. We had proposed to select 
several combines that were very large, with a monopoly or near- 
monopoly position in important industries. They must have an un- 
disputed record of collaboration in the Nazi economic scheme, pref- 
erably with international ties that had made them weapons of 
economic warfare. These firms would be called upon to show cause 
why they should not be separated into several independent enter- 
prises under new management, as required by the new law. 

Four outstanding cases suggested themselves. Three of these, 
the Henschel locomotive and armaments firm, the VKF bearings 
combine, and the Robert Bosch automotive-equipment trust, had not 
only their head offices and principal places of business, but also the 
bulk of their plants and other assets, in the American zone. The 
fourth, the Haniel family*s Good Hope steel and machinery com- 
bine, had the headquarters of its top holding company and the bulk 
of its machinery and diesel-engine factories in the American zone. 


and its coal, steel and shipping subsidiaries in the British zone. 

While procedures for co-operation with the British were being 
developed, the staff of the Decartelization Branch turned its at- 
tention first to the three representative combines in the American 
zone. Each of the cases illustrated a different type of problem, and 
together they presented a cross-section of the situations likely to 
turn up in other cases. 

The firm of Henschel und Sohn of Kassel owned not only the 
largest locomotive-building shops in Europe, producing locomotives 
for the German state railways and for export, but, in addition, 
owned other factories producing trolley-busses, narrow-gauge en- 
gines, heavy trucks, road-making machinery and other heavy equip- 
ment, and had interests in a great many other lines of business. The 
Henschel family ties with the Nazi regime were close and the firm 
had distinguished itself early in the armament program by the de- 
velopment and production of the ''Tiger'* tank and the 88-miUimeter 
gun. The firm had also undertaken a large aircraft-engine program 
for the German air force. The several plant groupings owned by 
the parent Henschel firm had operated independently of one an- 
other with practically no intermediate processing of common com- 
ponents to be shipped back and forth among different plant groups. 
Not only was the case for reorganization clear-cut, but it would be 
a simple matter to separate the different plant groups from the 
common control of the Henschel crowd without "interfering with 
production" in any legitimate sense of the word. 

The other two American-zone test cases, VKF and Bosch, were 
complicated by international ties and contractual arrangements; 
but they, too, were simple from the standpoint of their productive 
activities in Germany, where each of their separate plant groups was 
operated independently of the others. If any pressure should be 
brought on the military government to go easy, for reasons not 
mentioned in Law No. 56, the issue of "interference with pro- 
duction** could he kept within manageable bounds. If the staff had 
chosen examples like Degussa or the Metallgesellschaft, questions of 
technology might have complicated the arguments. 

The case of Robert Bosch, G.m.b.H. of Stuttgart involved some 
old puzzles. The American Bosch Corporation of Springfield, 


Massachusetts, had been seized by the Alien Property Custodian 
of World War II. Its predecessor firm had likewise been seized in 
World War I and between wars had found its way back into Ger- 
man control. 

For years the German Bosch combine has controlled a majority of 
German production in the fields of automotive and aircraft electrical 
equipment and aircraft fuel injection. The firm controlled patents 
in these fields, both in Germany and abroad. Largely because of 
patent agreements between Bosch and companies in France, Britain 
and the United States, the use of fuel injection instead of carburetors 
on aircraft motors had remained a peculiar advantage of the Ger- 
man aircraft industry and had no counterpart in the other three 

The Bosch firm's key position in Germany rested rather on its 
control of patents and technology than on size of its manufacturing 
plants. The company's books show^cd assets valued in 1945 at a 
hundred and forty million dollars, all controlled by the Bosch 
family. The eight members of the management and supervisory 
boards held a total of thirty-eight positions on the boards of other 
companies. Through control of the only large central research labora- 
tory in its field, the firm had a voice in the operation of other firms 
whether or not it owned any interest in them. In the same way its 
activities abroad had reached beyond the control of assets or stock 
in other companies. 

The cloaking of the Bosch outpost in the United States was more 
smoothly arranged in World War II than it had been during 
World War I. After World War I, a group of three men, headed 
by one Martin E. Kern, representing themselves as American 
citizens, had bought the Bosch properties in the United States from 
the Alien Property Custodian. Mr. Kern, who became president of 
the new American Bosch Magneto Corporation, actually was an 
alien who represented himself as an American citizen of Swiss 
extraction. Four years after he became president of the company, 
he was convicted of making a false statement in an application for 
a passport when he made the same claim to American citizenship. 

Curiously enough, after paying a heavy fine in the latter case, 
Mr. Kern was allowed to continue as president and director of 


American Bosch* Though the Alien Property Custodian notified 

the Department of Justice of Kern's conviction, no action was taken 
to set aside the Bosch sale. A few years later, in October 1929, 
American Bosch and German Bosch made a "trade agreement" 
defining the respective territories of the two firms and the rights to 
the use of the Bosch name; and by 1930, German Bosch had again 
acquired a majority of the stock of the American Bosch interests. 

After the near-disaster that almost lost Bosch the control of the 
American properties, the German company got busy to arrange a 
better cloak for the future. In 1934, the Robert Bosch firm "sold" the 
controlling stock of the American Bosch Corporation to the Men- 
delssohn Bank in Amsterdam, Holland, subject to the right of 
Bosch to reacquire the stock under certain conditions. The Men- 
delssohn Bank then established a Dutch holding company, known 
as NAKIB, to hold the shares of the Bosch properties in the United 
States, Britain, France and Italy. Two officials of Robert Bosch then 
joined the staff of the bank to direct the policies of NAKIB* In 
1935, the bank engaged Mr. George Murnane, former vice president 
of the New York Trust Company, to become a director and chair- 
man of the board of American Bosch Corporation. When the Men- 
delssohn Bank went bankrupt in 1939, the liquidators appointed by 
the Dutch government found that the American Bosch stock had 
been transferred to the New York Trust Company as security for 
a loan. The New York Trust Company proposed to sell the stock to 
satisfy the debt of the 'owner," the Mendelssohn Bank. 

At this point Dr. Erich Rassbach, director of Robert Bosch of 
Stuttgart, revealed that any transfer of control over the American 
company really required their consent, because all the oper2itions 
of the American Bosch Corporation depended on patent licenses 
granted to them by the Stuttgart company. If these licenses should 
be withdrawn, American Bosch Corporation would be "an empty 
shell," and the stock worthless. Thus, without having legal owner- 
ship of the stock of American Bosch, German Bosch had the com- 
pany under control just as effectively as if the stock were in the 
safe at Stuttgart. 

On May 6, 1940, just before the German blitz swept into Holland, 
the American Bosch shares were "sold" with the permission of 


Stuttgart to the Enskilda Bank o£ Stockholm. The bank put them 
under the control of a financial holding company named ''A.B. 
Investor/* The transfer agreement created an option to permit 
Robert Bosch of Germany to repurchase the stock two years after 
the end of the war. At that time Marcus Wallenberg, who, with 
his brother, Jacob, controls the Enskilda Bank, was also acting 
simultaneously as agent of the German Reichsbank in other 

In November 1940, a voting trust agreement was set up in the 
United States under which George Murnane was designated by the 
Wallenbergs' Enskilda Bank as tlie sole voting trustee with complete 
power to vote the American Bosch stock at stockholders' meetings 
in the United States. The voting trust arrangement provided that if 
George Murnane should die, his successor should be named by John 
Foster Dulles, senior partner of Sullivan & Cromwell, the law firm 
which represents the Wallenbergs and the Enskilda Bank in the 
United States. 

While all this legal hotwork was keeping the legal ownership of 
Bosch properties abroad in. the technical custody of neutral citizens, 
Bosch of Stuttgart was not hampered in its control over the use of 
patented Bosch technology by non-German companies. Even as late 
as June 1941, American Bosch was the only source of supply of 
fuel injection equipment for naval diesel engines. The United States 
Navy wanted to develop a second source of supply, but found that 
American Bosch had no right to grant a license to any other com- 
pany to make this patented equipment. The American Bosch com- 
pany informed the navy that no such license could be granted with- 
out the consent of the Robert Bosch firm at Stuttgart. 

Finally, on May 19, 1942, the controlling shares of American 
Bosch Corporation, nominally held by the Swedish firm, A.B. 
Investor, were taken over by the Alien Property Custodian. On 
December 29, 1942, an antitrust action against the American Bosch 
Corporation was concluded by a court order canceling all agreements 
between American Bosch Corporation and Robert Bosch of Stutt- 
gart, arising out of their ''unlawful combination and conspiracy to 
suppress, limit and control competition between themselves through- 
out the world.'* American Bosch Corporation was required to issue 


licenses under all of the Bosch patents to American manufacturers 
without royalties [or the duration of the war. 

The third case, that of the VKF bearings combine, also involved 
cloaking operations and the Enskilda Bank. One of the mysteries 
of World War 11 has been the unexplained international relations 
of the Swedish industrial organization, A.B. Svenska KuUager- 
fabriken, known as SKF, Sweden's largest industrial concern and 
the world's largest manufacturer of ball and roller bearings. The 
principal Swedish interest in SKF is held by the Wallenbergs 
through their Enskilda Bank and its investment subsidiary, A.B. 
Investor. The actual extent of German or other foreign control, 
either directly or through the Wallenbergs, has not been disclosed. 

For many years the active management of SKF was in the hands 
of Sven Wingquist, the founder of the firm. In 1941, he gave up the 
day-to-day management but remained as chairman of the board. 
From time to time, beginning in 1933' and 1934, Sven Wingquist 
came into the world spotlight as one of a colorful clique of inter- 
national adventurers, who gained special notoriety by their buzzing 
around Edward VIII at the time of his abdication in 1936. They in- 
cluded Axel Wenner-Gren, the yachtsman; Charles Bedaux, in- 
ventor of a labor speed-up system; and Jacques Lemaigre-Dubreuil, 
French banker and vegetable-oil man of West Africa. 

Axel Wenner-Gren w^ill be remembered as a yachtsman with a 
remarkable record of coincidences. He cruised the seas throughout 
much of the war in his yacht, the Southern Cross, and turned up 
to rescue survivors of German submarine attacks, beginning with the 
German sinking of the British ship Athenia in 1939 and continuing 
through the Caribbean submarine campaign of 1942. At the time, 
some people speculated about how one yacht could happen along 
so often when a submarine spotted a vessel; but the coincidences 
were never explained. 

Charles Bedaux, inventor of the "Bedaux System," a speed-up 
system for forcing higher labor output in factories, was an American 
citizen who spent most of his life abroad. The Duke and Duchess 
of Windsor were married in the Bedaux chateau on the Riviera. 
Bedaux was captured by American forces during the invasion of 
North Africa while busy building a pipeline to bring vegetable oil 


from Lemaigre-Dubreuil's West African domain to the Mediter- 
ranean to help relieve the critical German shortage of fats and oils* 
Bedaux committed suicide in the federal jail at Miami, while await- 
ing trial for treason. 

Svcn Wingqulst and Axel Wenner-Gren had taken an active 
part after World War I in the German plans to mask the owner- 
ship of subsidiaries abroad. To get around the Versailles Treaty, 
Brms like Carl Zeiss, manufacturers of military optical equipment, 
set up branches such as the "Nedinsco" firm at Venio in the Nether- 
lands and carried on as before. The Krupp firm did the same in 
Spain, Sweden, and other countries. 

In 1934 the Swedish government discovered that Krupp controlled 
a block of shares in the Bofors steel and munitions works through a 
Swedish dummy holding company called ''Bolorsintcressenten,'' 
Sven Wingquist, who was chairman of the board of the Bofors steel 
and munitions works, was one of the two Swedish citizens who 
had been voting this stock for Krupp at stockholders' meetings. 
The Krupp concern controlled approximately one third of Swedish 
Bofors in this manner and had maintained enough additional 
voting strength through Axel Wenner-Gren to control the affairs 
of Bofors. 

Sven Wingquist and the Wallenbergs have always claimed that 
SKF is Swedish-owned and Swedish-controlled. Up till 1928, no 
one had any reason to doubt this assertion. But in 1928 and 1929, 
SKF was involved in a series of moves whereby all but one of the 
important bearing firms in Germany, accounting for 60 per cent of 
Germany's bearing industry, were merged into a new concern, the 
Vereinigte Kugellagerfabrikea A.G., known as VKF. When these 
moves were completed, SKF showed on the record as the owner of 
99,7 per cent of the stock of German VKF. The mystery is how 
SKF could possibly have managed to pay the German owners of 
the merged firms without giving the Germans either money or some 
substantial stock interest in the Swedish firm, SKF» The manage- 
ment of Swedish SKF denied that any stock was given to German 
interests; but they never explained how the German interests were 
paid off. 

In a similar deal in 1928 under which SKF had merged and ac- 


quired the principal French bearing companies, SKF issued 
14,000,000 kroner, par value, of new SKF shares which they turned 
over to the French interests in exchange for the controlling shares 
in the new French concern. This increase of SKF's capital from 
92,000,000 to 106,000,000 kroner, by the issue of 14,000,000 to the 
French, gave the French interests among them a 13 per cent par- 
ticipation in Swedish SKF. In 1929, SKF increased its outstanding 
shares by another 24,000,000 at the time it acquired ownership and 
control of the German bearing trust, VKF. 

At the time of the completion of the German merger, on Septem- 
ber 8, 1929, the Frankfurter Zeitung reported that the shares of 
VKF would not be listed on the German stock exchange and went 
on to say, "However, the shares of the Swedish parent company, of 
which a part is already German-owned, will shortly be listed on the 
Berlin exchange.'* In 1933, a pamphlet published by VKF explained 
the 1929 deal as part of a plan to assure the German firm an in- 
creased export market. The pamphlet reported: ''Mainly for this 
reason, there developed a voluntary dependence on the international 
SKF concern. In spite of this dependence, it was largely German 
capital which was interested in the share capital of Vereinigte 
Kugellagerfabrikcn A.G.> amounting to RM 30,000,000, because the 
former owners are holders of the SKF concern shares and still other 
shares are in German private ownership.'' 

The case of VKF of Germany and its international ties through 
SKF of Sweden, posed a problem in the concentration of German 
economic power. It was like the case of German VGF and Dutch 
AKU in the synthetic textile field. While the question of German 
control as against "neutral** control has never been satisfactorily an- 
swered, the ^'neutral" firm is unquestionably the legal owner of im- 
portant interests in the United States which were immune from 
seizure by the Alien Property Custodian during World War IL In 
the case of SKF, the subsidiaries in the United States are SKF In- 
dustries, Incorporated, of Philadelphia and SKF Steels Incorporated, 
of New York. 

In 1940^ Marcus Wallenberg came to the United States to buy up 
German securities in the American market, presumably for the 
Reichsbank, as part of the German Economic Ministry's "repatria- 


tion" program to buy out Germany's external debt at a few cents on 

the dollar. He arranged at that time to set up a voting trust which 
conveyed nominal control of SKF's subsidiaries in the United States 
to William L. Batt as voting trustee. Mr. Batt is president of SKF 
Industries, and, during the war, served as deputy chairman of the 
War Production Board. It was Mr. Batt who called at my office in 
Berlin in the autumn of 1946 soon after the press reported rumors 
that we were considering action to divorce German VKF from its 
international partners. He had come to Berlin to confer with General 
Draper on matters of German recovery; but he also wanted to be 
assured that nothing would be done to disturb the Swedish interest 
in the German company, or to reduce the value of the holdings by 
permitting removal of any of the plants from Germany as repara- 

It happened that two thirds of Germany's entire bearing industry 
was concentrated in a single group of four factories at Schweinfurt. 
Three of them, accounting for 36 per cent of Germany's productive 
capacity, were owned by VKF; and one, accounting for 30 per cent 
of German capacity, was owned by the only remaining large inde- 
pendent, Fischer A.G. When American air forces bombed Schwein- 
furt during the war, in an effort to knock out this strategic point in 
German industrial production, Schweinfurt was discovered to be one 
of the most heavily defended spots in Germany. German defenses 
inflicted a loss of fifty American heavy bombers in one raid alone. 
When these raids temporarily knocked out Schweinfurt, the effect 
was largely nullified by shipments of bearings from SKF in Sweden. 
A special United States mission was sent to Sweden to buy off SKF's 
production; but it was only partially successful in this attempt to cut 
SKF shipments. When the time came to give up German plants as 
reparations after World War 11, a large part of the plant of the 
independent bearing firm, Fischer A.G. at Schweinfurt, was packed 
up and shipped off, leaving VKF with substantially a loo-per-ccnt 
monopoly of German bearing production. 

The work o£ preparing specific recommendations for rearranging 

the affairs of these combines illustrated what Attorney General 
Biddle had told the Kilgore Committee in 1944. Reminding the 


Senate committee that actual reorganization plans would have to 
be carefully drawn, he had said: 

"Such plans would have to be developed to fit the particular com- 
panies to which they are to apply. Even with the kind of adequate 
information which can be obtained only during a period of occupa- 
tion, it would take a long time to work them out and each one of 
them would raise a variety of policy problems. It is not simple. Yet 
this is the kind of program which it will be imperative to follow if 
we arc to guard our own security.** 

While most of the professional members of the Decartelization 
Branch staff worked on different parts of the Henschel, Bosch, VKF 
and Good Hope cases, the new chief, Phillips Hawkins, worked out 
the procedures to be followed in seeing each case through. Members 
of the branch became a little concerned when a special board was set 
up to review the extensive findings of fact in the Henschel investiga- 
tion. A group from the Industry Branch and other parts of the 
Economics Division was sent on a special trip to Kassel to go back 
over the entire ground already covered by the Decartelization 
Branch before the Henschel company could even be served with an 
order to *'show cause'* why it should not be reorganized. The rules 
already called for reviews and appeals, after a case had been argued 
and before the company could be ordered to dispose of any property. 
The idea of *Veviewing" the simple proposal to start a case looked 
unnecessarily complicated. 

Even so, by March i, 1948, four "staff studies" had been completed 
in the test cases. The action recommended in each case was the issu- 
ance of a military government order requiring the cotnpany to an- 
swer the charge that, for reasons stated, it represented an excessive 
concentration of economic power. 

At the same time, General Clay made the long overdue move to 
put the cartel-control work into a separate division. A general or- 
der effective March i created a Property Division directed by Phil- 
lips Hawkins. Richardson Bronson became chief of the Decartel- 
ization Branch in the new division. The Army newspaper, Stars 
and Stripes, indicated that the purpose of the order was to group 
together those organizations, such as property control, restitution, 
reparations and decartelization, which were slated for early liquida- 


tion. Most members of the branch assumed that this statement was 
a reporter's error, since the decartelization program had not yet 

Mr. Bronson, as my deputy control officer for I.G. Farben, had 
shown little enthusiasm for the Farben reorganization, but in gen- 
eral had followed my specific instructions without protest. In his 
new role as chief of the branch, however, he commenced by an- 
nouncing to the stafJ that he had been reluctant to accept the 
appointment. He had not previously been in sympathy with de- 
cartelization; but the way the work was shaping up had convinced 
him that it was after all a program to which he could subscribe^ 
During the following week the stafi waited for approval of the "stafE 
studies," which would give the green light to begin proceedings. 

Instead of a green light, they got fireworks. On March 11, 1948 
Mr. Bronson called a meeting of all the members of the branch. 
He had on his desk a memorandum which he said General Clay 
had approved, but which he refused to show to anyone. The memo- 
randum set forth a new policy that was startling. It proposed to 
exempt from reorganization all enterprises in the field of capital 
goods and heavy industries. Action in the future w^as to be con- 
fined to enterprises having a monopoly in consumer goods. No 
action was to be taken against VKF, the bearings trust. The case 
againsi Bosch was to be suspended if not dropped entirely. 

Even the Henschel case was to be dropped, although the British 
in the meantime had concurred in finding the Henschel family 
holdings to be an "excessive concentration" within the meaning 
of the decartelization law* A report to the Secretary of the Army 
signed by Mr. Hawkins on September 23, ig4y had said: *The 
combine cannot be left intact for the reason that its position in 
the German industrial world was so powerful that it could dictate 
the terms under which it would do business, that it was beyond the 
reach of competitive influence; and that its size and influence ren- 
dered it impervious to the conditions of free enterprise." 

The branch in the future, according to Mr. Bronson, was to look 
for monopolistic and unfair trade practices in the fields of consumer 
goods and merchandising. Such practices had been prohibited un- 
der Section 2 of Law No. 56, with no distinction made between 


heavy and light industries. Mr. Bronson went on to say that no re- 
organization of large combines under Sections 3 and 4 of the law 
would be undertaken unless such combines were found in the con- 
sumer-goods field. In any future cases under Sections 3 and 4 a 
"rule of reason" would be the guide, in place of the ^'arbitrary 
standards" of Law No. 56. No reorganizations would be allowed to 
affect 'Vertical integrations*' of industry from raw material to 
finished product, but only "horizontal integrations" of plants in the 
same field of production. Finally, those large enterprises against 
which no action was contemplated under this new policy must be 
given a "clean bill o£ health*' so that they could stop worrying about 
the possibility of legal proceedings. Actually investigations up to that 
time had revealed only four firms in the consumer-goods fields with 
enough economic or political influence to deserve so much as pass- 
ing mention: the Reemtsma cigarette monopoly, the German match 
monopoly, the South German sugar trust, and the Schultheiss 
brewing firm. 

Mr. Bronson announced that approximately one fourth of the 
staff would be laid off. The reason given was that the organiza- 
tion and working assignments must be changed to meet the re- 
quirements of the new policy. Those remaining would stop work 
on the heavy-industry combines and direct their attention to spot- 
ting unfair trade practices. Four persons would work for a short 
time clearing up all pending matters in relation to heavy or capi- 
tal goods industries. 

Shocked by this series of statements in such open contradiction 
to General Clay's position during the previous two years, nineteen 
members of the Decartelization Branch, all but two of the profes- 
sional staff then in Berlin, signed a memorandum to General Clay 
informing him of the statements Mr. Bronson had made. The mem- 
orandum was submitted for whatever clarification General Clay 
might consider necessary. A few days later, on March 17, the same 
nineteen prepared another memorandum describing a series of re- 
visions and counterrevisions of Mr. Bronson*s oral orders which 
followed his conversations with Messrs. Hawkins and Wilkinson, 
and the publication in the Netif YorJ{ Times of a series of dis- 
patches by Delbert Clark describing the new policy. 


Both of the memoranda to General Clay pointed out that Mr. 
Broiison's orders amounted to a drastic amendment or nullifica- 
tion of Law No. 56, which the staff was supposed to enforce. 
Mr. Bronson's orders were without written confirmation of any 
sort. "The effect of such an ^amendment/ we believe, would be to 
leave the fundamental concentrations of economic power intact 
while engaging in little more than harassing attacks on the smaller 
companies. This, of course, aside from being in contravention of 
the Law would tend to make its enforcement unpopular and com- 
pletely ineffectual. We also think there are very serious objections 
to giving immunity to 'vertical integrations* since the Law makes 
no such exceptions; we believe that to give a 'clean bill of health' to 
subjects of investigation is contrary to all established principles of 
law and law enforcement; and we think that being guided by a 
'rule of reason' rather than standards in the Law offers many obvi- 
ous dangers." 

Some members of the Decartelization Branch hoped that once 
General Clay saw how the cartel policy was being misinterpreted, 
he might do what he had done so many times in the past: bring 
the matter up in his Saturday morning staff conference, make the 
official position clear, and dress down the men who had twisted the 
running orders. These hopes were dampened slightly by the knowl- 
edge that changes of viewpoint in Washington would sooner 
or later have their effect and that General Clay might find it con- 
venient to scuttle the program. There was always the possibility, 
which none of General Clay*s statements in support of decarteliza- 
tion had ever quite dismissed, that he had been interested only in 
maintaining appearances. So long as there had been danger of 
criticism in Congress or in the press it the cartels were allowed to 
revive, he had been building a record of public statements in favor 
of the anticartel policy, but he had done nothing to override the 
steady sabotage. 

The professional staff did not know until several days after Mr. 
Bronson s bombshell that on Sunday, March 7, Messrs. Hawkins 
and Bronson had talked with General Clay in his office about 
changing the decartelization program. Mr. Hawkins had sum- 
marized the results of that conference in a memorandum which 


was then discussed by General Clay with Wilkinson, Hawkins 
and Bronson on March 9. It was this Hawkins memorandum of 
March 9 that Mr. Bronson had on his desk, but refused to show, 
when he talked to the staff on March 11. 

At the conference of March 9, General Clay had read the mem- 
orandum, said that he generally approved of everything it con- 
tained, and agreed that it should serve, without being published as 
such, as the guide to the activities of the Decartelization Branch. 

Mr. Bronson reported the matter in a private memorandum for 
his own files. General Clay had "realized that the dissemination of 
this memorandum prepared by Mr. Hawkins, to which he infor- 
mally agreed, would be disturbing to those in the Decartelization 
organization who had had strong antitrust background and we could 
expect considerable remonstrance and bitter feeling, but that he 
expected me to keep such individuals in conformity with his poli- 
cies and the policies of OMGUS, and that if they did not conform 
in spirit, to have them replaced by individuals who were in agree- 
ment with such a program; that if I found that I had released too 
many people and I needed capable personnel, that I could always go 
back to the United States and bring back such personnel as were 
capable of doing the job. . . . General Clay stated that he realized 
that when this Program was made pubhc, there would be a 
scream to the high heavens from the strong antitrust group, but that 
there had been similar screams before as exemplified by the sound- 
ings-off of Martin back in the States, but that the screams had come 
and gone and that probably there would be not much more major 
interest. . , 

The professional staff of the branch had no knowledge of these 
conferences. They dispatched their joint memoranda to General 
Clay and sat back waiting for the lightning to strike. Late in the 
afternoon of March 22 ail nineteen were summoned to a meeting 
with General Clay in the big conference room around the hollow 
square tabic. 

As the members were assembling in the conference room, Alex- 
ander Sacks, the only one left of the three of us who started on the 
venture in 1945, turned to Virginia Marino, another former mem- 
ber of the Economic Warfare Section, and remarked that Bronson 



must be serving his own interests because General Clay could not 

possibly have approved the new policy. She replied that Bronson 
would not dare to fabricate the story that his orders came from Gen- 
eral Clay, and besides, he had shown no evidence of having a per- 
sonal iron in the fire. Johnston Avery, who as the assistant chief in 
charge of enforcement had been bearing the brunt of the argument 
over enforcement changes, came in and sat down at a corner of 
the table on the side opposite General Clay's chair. His calm man- 
ner showed his belief that Clay would set matters right. Captain 
Laurent, who as a TVA lawyer had had a ringside seat for that 
organization's fight with the fertiHzer trust, and whose staff had 
prepared the Henschel, Bosch, VKF and Good Hope cases, was 
confident that the four test cases were so thoroughly prepared that 
General Chy could not reject them all at once without announcing 
an obvious reversal of policy. The general feeling that Bronson had 
been offside seemed to have further support in the fact that Bron- 
son had hurriedly departed for the United States a few days before, 
at the height of the controversy. 

General Clay entered the room flanked by Lawrence Wilkinson 
and Phillips Hawkins. He opened the meeting with the statement 
that Bronson had no responsibiUty in the matter of recent policy 
statements. The decisions were those of General Clay himself. He 
had rejected the Henschel case because of the company's impor- 
tance to the rehabilitation of Europe, and because the combine had 
only one customer, the German State Railway. This statement made 
It clear that General Clay had not read or had not understood the 
findings of fact in the Henschel case. The State Railway pur- 
chased locomotives from the standard-gauge railway locomotive 
shop, which was only one part of the vast holdings. General Clay 
went on to say that he had rejected the VKF case because VKF had 
already, at the insistence of the Decartelization Branch, transferred 
some idle equipment to the independent producer, Fischer A.G, 
This transfer of idle machinery, according to Clay, had ''destroyed 
the monopoly." Further than that he would not go. It would not 
be possible to approve the severance of VKF from the ownership 
of "neutral" Swedish SKF. 

General Clay said he had accepted part of the plan in the Bosch 



case, to cut off the few small subsidiary enterprises unrelated to the 

company's main fields of activity; but he could not agree to dis- 
turb the Bosch control of the central research laboratories and the 
plants in its main fields, electrical equipment and fuel injection. In 
the steel industry, he said, the Good Hope case was premature until 
a decision should be made on the number and kind of competing 
companies to be created of the properties of the six big steel com- 
bines. In general, every case in the future would be examined by a 
"rule of reason.'* Since no two people would necessarily agree on 
the conclusions to be drawn from the facts in each individual case, 
the final decision would be made by General Clay himself. 

As the Military Governor went on with his statement, the listen- 
ers exchanged looks of incredulity. Johnston Avery's face looked 
drawn. His jaw dropped. Throughout the first part of the meeting 
he did not speak, but sat taking notes. Some of those around the 
table, including Captain Laurent, began to ask questions. Others 
were Charles A. Dilley, former professor and student of antitrust 
legislation; Richard R. Rathbun, who later returned to the United 
States as a lawyer for the Antitrust Division; Irene Opton Ball, 
wife of the director of the Finance Division and a former financial 
analyst for the Board of Economic Warfare; John J. Barron, for- 
mer FBI agent; and Samuel L. Kobre, attorney. Kathryn R. Beaty, 
former secretary to Wendell Berge in the Antitrust Division, and 
Charles Baldwin, editor of the four-volume report on cartels and 
combines, and others watched and listened. At first no one attempted 
to answer back or argue, beyond askijig pointed questions. Finally 
Johnston Avery gathered up his notes and edged forward in his 
chair, preparing to speak. 

General Clay had just replied to one question by saying that 
the steel industries in Germany must be big enough to "live" in 
competition with the steel industries of other countries. He went 
on to say that the German steel firms must operate at a profit, so 
as to bring the owners a "reasonable rate of return on investment.'* 

At this juncture, Alex Sacks raised a po'mL The history of the 
Ruhr steel industry, which would long since have been bankrupt but 
for a large government subsidy, emphasized the absurdity of guaran- 
teeing a "reasonable rate of return on investment" to the industry 



in a competitive market. What right did the owners of these com- 
bines have to this kind of consideration? Suddenly General Clay 
cut in. His face clouded up. His fist banged on the table. "I did 
not come here to be lectured on decartelization." He looked around 
the table. In a controlled voice he finished off: ''I hope that no one 
feels he has to leave/' He paused. *1 hope that everyone viall feel 
tliat he can remain and work under the policy as I have stated it. 
Good night, gentlemen!" He rose and left the room. 

The results came rapidly. Johnston Avery and Frank Laurent 
tendered their resignations. These were accepted. The professional 
staff was cut. In all, ten positions were abolished in the first reduc- 
tion of force under the "new policy.** Other cuts came later. In the 
end this left a handful of Americans responsible for the trade prac- 
tices of twenty million Germans in the United States zone. 

Major General George P. Hays> the Deputy Military Governor, 
had views of his own on what should happen to people who oppose 
cartels. On the floor of the House of Representatives on March 25, 
1948, Representative George G. Sadowski of Michigan referred in 
the course of a debate to the "nineteen courageous men and women" 
of the Decartelization Branch who had asked General Clay to 
clarify the cartel policy in Germany. Representative Sadowski had 
introduced into the record a copy of the memorandum of March 13, 
1948- There was no indication that any one of the nineteen, let alone 
all of them, had provided the congressman with a copy of the 
memorandum. When General Hays received a copy of the Congres- 
sional Record he pinned a note on it and sent it to Phillips Hawkins. 
The note read: "Please have read by each of 19 'courageous' non- 
conformists. Mr. Sadowski may consider them courageous, but I 
consider them disloyal employees who should be treated accord- 

The personnel office thereupon put a note in the personnel file 
of each of the signers, stating that no promotion, transfer, or other 
change of status was to be made without clearance from higher 
authority. Later, General Clay tried to apologize for his deputy's 
remark and General Hays offered to write a letter to any of the 
nineteen who requested it, saying he did not mean they were sub- 
versive. But the ''disloyal'* label continued to dog the tracks of all 


nineteen, not only because denials never catch up with charges but 
also because government files never give up their papers. 

What had been announced as a law to bring about decentraliza- 
tion of the Germany economy, and to end the power of the heavy 
industry trusts and combines, was almost overnight transformed 
by verbal order into a law for limited policing of business practices, 
with no fundamental change in the business structure to be policed. 
Not only was the main job left undone, but public servants were 
damned for having tried to do it. 


The Hand in the German Glove 

AFTER two and a half years, I came back from Germany quite well 
aware that I had been wrestling with a buzz saw. We had not been 
stopped in Germany by German business. We had been stopped in 
Germany by American business. 

The forces that stopped us had operated from the United States 
but had not operated in the open. We were not stopped by a law 
of Congress, by an executive order of the President, or even by a 
change of policy approved by the President or any member of his 
cabinet. In short, whatever it was that had stopped us was not "the 
government." But it clearly had command of channels through 
which the government normally operates. 

The relative powerlessness of governments in the face of growing 
economic power is of course not new. Between the two world wars 
the outstanding development ia world economics was the division 
of territories and markets, by private agreement, among the largest 
corporations of Britain, Germany and the United States, with minor 
participations by their counterparts in France, Italy and Japan. Na- 
tional governments stood on the sidelines while bigger operators 
arranged the world*s affairs. 

In the United States in 1933 President Roosevelt tried to estab- 
lish a government powerful enough to talk back to the private 
operators. For a time the Roosevelt government asserted its right 
to control business activities wherever they might affect the public 
interest. But with the outbreak of war, men who had been on the 
outside during this New Deal era, cursing "that man'" from their 
chairs in the Union League Club, had to be called to Washington* 


The government of the United States found that it was in no posi- 
tion to fight a war unless it made a deal with the powers in control 
of the country's productive capacity. 

With World War II "business" moved into "government/* Men 
from high positions in investment banking and in the management 
of the top industrial holding companies came to Washington to 
guide the war production program. Later they moved up to high 
policy-making positions. Especially noteworthy was a group drawn 
from the Morgan companies and their pilot-fish, the bankers of the 
Harriman firm and the business-management specialists of Dillon, 
Read & Company. James V. Forrestal, former president of Dillon, 
Read, moved from Undersecretary of the Navy, a position largely 
concerned with co-ordination of industry programs to speed materiel 
procurement, to Secretary of Defense. Robert A. Lovett, former 
partner in Brown Brothers, Harriman & Company, moved from 
Assistant Secretary of War to Undersecretary of State. W. Averell 
Harriman himself started as a "liberal businessman'* sent on a 
mission to Moscow in connection with Lend-Lease. He later be- 
came Ambassador to Russia, Ambassador to England, Secretary 
of Commerce, and finally roving ambassador for the Marshall Plan, 
all the while retaining a limited partnership in the Brown Brothers, 
Harriman firm. 

Is it possibly a coincidence that Philip D. Reed, Lewis H. Brown, 
Frederick L. Devereux, and some of the others already mentioned 
in connection with the lapse of our German policy, have had in 
common their past experience with the financial and industrial 
concerns of the same investment banking groups? 

In 1942 the Truman Committee investigated the performance of 
a number of dollar-a-year men, including Mr. Reed, and had this 
to say about their failure at that time to carry out certain govern- 
ment policies which affected the larger firms: "The committee be- 
lieves that most dollar-a-ycar and 'without compensation' men are 
honest and conscientious, and that they would not intentionally 
favor big business. However, it is not their intentional acts that 
the committee fears, but their subconscious tendency, without which 
they would hardly be human, to judge all matters before them in 
the light of their past experiences and convictions." 



These men, with all their "past experiences and convictions'* 
found a ready-made kit of tools left over from the cartel era of the 
twenties and thirties. The failure of military government to do 
anything about removing the tools meant that the "subconscious 
tendency" of these like-minded men could find a ready expression 
in all the machinery of collaboration which was waiting to be 
revived between German and foreign business groups* 

Some of the machinery of collaboration had been designed with 
considerable skili. In the twenties, for example, the elder Hugo 
Stinnes, founder of the Rhenish-Westphalian Coal Syndicate and 
head of the Stinnes coal, steel and shipping interests, set up two 
new corporations in the United States. These two corporations be- 
came the legal "owners" of all the Stinnes properties in Germany. 
Both Hugo Stinnes Industries, Incorporated, and the Hugo Stinnes 
Corporation, were incorporated under the laws of Maryland, with 
their head oifices in New York. The elder Stinnes borrowed heavily 
in the United States in the 1920's by selling bonds to the public, 
and later defaulted on the loans. But since the assets of the two 
"American** Stinnes companies consisted almost entirely of the 
shares of stock they held in the German Stinnes corporation, there 
was little the creditors could do to realize on the bonds. 

Before World War II, the shares of the German Stinnes held 
by the Stinnes companies in the United States represented a major- 
ity of the outstanding stock of the German companies. When the 
war came, the German companies, now headed by Hugo Stinnes, 
Jr., developed a hedge to take care of cither a German defeat or a 
German victory. To prevent seizure of the properties by the German 
Custodian of Alien Property because of their "American'* control, 
Stinnes called a meeting of the German stockholders, representing a 
minority of the outstanding shares, to approve an increase in the 
outstanding stock of the German company. The stockholders then 
sold all of these new shares to themselves. As a result, the blocks of 
shares owned by the American companies no longer represented a 
majority of the outstanding stock. This made the Stinnes companies 
German-controlled and not subject to seizure. In the event of a 
German victory, all was well. But if Germany lost the war, the 
holders of the American stock could go to court and have the action 


of the German stockholders rescinded because a majority of the 
stock had not been represented at the meeting. The issuance of 
the new stock, which had reduced the proportionate holdings of the 
American companies, would be declared illegal. That is actually 
what happened. In 1948, a German court held that the Stinnes inter- 
ests in Germany were "American property." Since that time the 
Stinnes companies have had the preferred status that goes with 
"foreign*' ownership in postwar Germany. 

The preferred status of "foreign" companies has provided an im- 
portant part of the new design that is shaping the international eco- 
nomic balance. What was hit-or-miss in the "Christmas-tree" econ- 
omy of the years after 1945 in Germany, from the standpoint of 
the German national economy, is not necessarily haphazard from 
the standpoint of power concentrations in international economic 
affairs. German firms with international ties have become small 
cogs in a larger machine. At the same time, new policies have been 
developed to promote the "integration and co-ordination" of the 
German internal economy into a more closely controlled mecha- 

On May 15, 1948, two months after disagreements over the cartel 

policy had come to a head, Leland E. Spencer, head of General Clay^s 
Commerce and Industry Group, a part of the Anglo-American con- 
trol organization for Bizonia, presented to General Clay a memo- 
randum proposing a "revised German economic policy " Mr. Spen- 
cer proposed to establish a series of privately controlled German 
industry associations, each with its headquarters in the "natural 
center" of the industry. Membership by German companies in such 
associations would be "voluntary"; but the association would be 
given power to act as a central control and co-ordinating point for 
all companies in the industry, whether they were members of the 
association or not. The association would require all companies to 
submit production data and other information, and would allocate 
scarce materials among the different companies on the basis of their 
"relative position in the industry," Discrimination by an associa- 
tion against nonmembers, or between members, would be pre- 
vented by establishing an appeals board in the German Bizonal 
Economic Administration. The Economic Administration would 



also serve as a top control and co-ordinating point for the whole 
hierarchy of associations. 

This grant of regulatory powers to the industry associations, ac- 
cording to Mr. Spencer, would "remove governmental interference 
in business," a change which he described as "a must!*' General 
Clay approved this policy on May 21, 1948, thereby bringing to an 
end the earlier policy adopted in 1945 which had forbidden turning 
over regulatory powers, which were basically governmental powers, 
to privately organized industry groups. In 1945 the bad example of 
the Reichsgruppe Industrie and its system of industrial "self- 
government'* had been enough to show the need of keeping gov- 
ernmental powers in the hands of a government. But the era that 
followed was one of quiet forgetfukess. General principles, based 
on previous experience of the way governments have broken down, 
gave way before the demands of * efficiency"; and German admin- 
istrators or even private organizations were given the power to 
make their own rules as they went along. 

The breakdown or abandonment of time-tested principles was 
an inside job. While General Clay himself assumed full respon- 
sibility in March 1948 for overruling reorganization plans in the 
case of the heavy-industry combines, his decision followed after 
several conferences within the Economics Division on policy ques- 
tions. Early in 1948, as the test cases for reorganization under Sec- 
tion 3 of the decartelization law were being made ready, Harald 
Hamberg and two other gentlemen from Swedish SKF at Stock- 
holm arrived in Berlin to discuss the future of the German VKF. 
Harald Hamberg was the former head of German VKF who, in 
1941, succeeded Sven Wingquist as head of Swedish SKF. Hamberg 
and his two companions lived at the Wannsee Officers Club during 
their stay at Berlin and traveled freely to Schweinfurt to confer with 
their German managers. 

When Robert A. Nitschke, chief of the Cartels Section of the 
Antitrust Division in Washington, arrived in Germany to confirm 
some documentary details of the government's antitrust case against 
the SKF combine, he was prevented for several days from making a 
trip to Schweinfurt to examine the records of VKF. By the time Mr. 
Nitschke reached Schweinfurt the gentlemen from Stockholm had 


already had three or four days to review the records themselves. 

The reason for the delay in Mr. Nitschke's case was an argument 
by several members of the Economics Division that it would be 
unfair to permit a federal agency to have any freer access to the 
records of a German company than they would have to the rec- 
ords of a company in the United States. They pointed out that in 
the United States, if a company does not volunteer to make its 
records available, the issuance of a subpoena requires the action 
of a grand jury, based on a "reasonable suspicion** that a criminal 
law is being violated. 

General Clay did overrule his Economics Division on this point 
of protocol; but the Economics Division's excessive caution may 
have accounted for the fact that the needed records were reported 
"lost in the bombing." In a previous case in 1946, involving docu- 
ments from the Krupp files to be used in the government's success- 
ful prosecution of the case against General Electric and the tungsten 
carbide monopoly, we had readily secured photostatic copies of im- 
portant documents. The British control ofScer in charge of the 
Krupp works had raised no objection to the invasion of the "pri- 
vacy" of the Krupps. 

The decision to drop the VKF case, which was confirmed by 
General Clay in March 1948, had been first proposed some six weeks 
earlier by Mr. Wilkinson following conferences in his office with the 
SKF men from Stockholm. No one from the Decartelization Branch 
was called into those conferences. The staff of the Decartelization 
Branch learned of the agreement reached by Wilkinson with the 
representatives of Swedish SKF when Richardson Bronson circu- 
lated copies of a memorandum he had written to Lawrence Wil- 
kinson, outlining his understanding of Wilkinson*s instructions for 
disposal of the VKF case. The substance of the memorandum was 
that VKF would be expected to sell two thousand surplus machines 
to the Fischer bearing works, but that since this action would 
allow Fischer to resume limited production and therefore would 
break the loo-per-cent monopoly position of VKF, no further 
proceedings would be undertaken against VKF. Also Swedish SKF 
would be informed that the military government had no intention 
of disturbing SKF*s ownership and control of German VKF. 


The Bosch case ran a slightly different course. While the De- 
cartelization Branch was making its study of all the facts and pre- 
paring its recommendations, a retired American general, Arthur C. 
Wilson, arrived at Berlin in a private capacity as representative of 
a Swiss firm which had an exclusive agency agreement with Bosch* 
General Wilson had previously served in North Africa and Italy, 
and had commanded the Continental Advance Sector of the Sixth 
Army Group in the invasion of southern France. Despite his lack 
of any official status, and his position as representative of a firm 
interested in the Bosch case, General Wilson was given an office in 
the Economics building at Berlin, and the use of an official staff car. 
Members of the Decartelization Branch received instructions to 
consult General Wilson on all phases of the proposed reorganiza- 
tion orders in the Bosch case, and to clear all such items with 
General Wilson before attempting to take them any further up the 
line toward General Clay s desk. 

It is not a crime under United States law for an army officer 
drawing retirement pay to represent a client before any agency or 
department of the government, unless he receives a fee for so doing. 
Section 113 of the Criminal Code does provide punishment for any 
officer in the employ of the United States — which has been held to 
include an officer on the retired list of the army drawing retire- 
ment pay — who "shall directly or indirectly receive or agree to 
receive any compensation whatever for any services rendered or to 
be rendered to any person, either by himself or another, in rela- 
tion to any proceeding, contract, claim, controversy, charge, accusa- 
tion, arrest, or other matter or thing in which the United States is 
a party or directly or indirectly interested, before any department, 
court martial, bureau, officer, or any civil, military or naval com- 
mission whatever/* 

Likewise, General Clay's deputy, General Hays, who conducted 
meetings on the Bosch matter at which General Wilson represented 
the position of Bosch, was not acting illegally unless General Wilson 
was receiving compensation from a client or from some other per- 
son. Section 332 of the Criminal Code applies only to one who 
"aids, abets, counsels, commands, induces or procures" the com- 
mission of an offense defined in a law of the United States. 


However, Genera! Clay did seem to entertain some doubts about 
the propriety of anyone*s transacting private business while enjoy- 
ing the privileges of a distinguished unofficial visitor. A few weeks 
after General Wilson's participation in the Bosch case was dis- 
closed, General Clay, without naming names, published an order 
forbidding former military and civilian members of the occupa- 
tion forces to enter Germany for private business purposes until 
two years after the termination of their service. He had been 
"shocked" to learn that one visitor had transacted private business 
while enjoying the status of a house guest of the Military Governor. 

Despite any questions General Clay may have had about Gen- 
eral Hays's handling of the Bosch matter, and General Wilson*s 
participation on behalf of Bosch, the treatment of the case itself 
was not materially changed. After General Clay had disapproved 
all the test cases, including Bosch, in March 1948, there was some 
unfavorable comment in the United States, particularly in Congress. 
Later, General Clay directed that the Bosch case should be re- 
examined. But in the end the Bosch firm suffered reorganiza- 
tion only to the extent of having one plant group, out of the many 
it controlled, slated for transfer to new ownership. Bosch retained 
control of the technology and know-how, as well as the patents 
accumulated on the strength of its monopoly position, and the con- 
trol of the research and development laboratories. In addition, 
with the help of General Wilson, the Bosch firm got military gov- 
ernment permission in July 1948 to enter into an "exclusive agency 
agreement" with a Swiss trading firm, the Industrial Products 
Trading Corporation, of Zurich. 

The Industrial Products Trading Corporation, formed for the 
purpose of buying industrial products from German companies and 
selling them in world markets, was owned jointly by General 
Wilson and two Greeks, the Ghertsos brothers. The latter had owned 
the Bosch agency in Greece for twenty years before the war. They 
made a loan of 33,000 Swiss francs to General Wilson to enable 
him to buy his one-third share in the new Swiss company. The 
so-called "Bosch-Swiss** agreement made the Swiss firm "sole and 
exclusive sales and service agents** in the following countries: Argen- 
tina, Brazil, Bulgaria, Czechoslovakia, Denmark, Greece, Hungary, 


Iceland, Iraq, Mexico, Panama, Portugal, Roumania, Sweden, 
Switzerland, Turkey and Yugoslavia. This agreement covered any 
and all Bosch products, including fuel-injection equipment, auto- 
motive and industrial electrical equipment, refrigerators, electric 
tools, and other products of the Bosch line, 

Richardson Bronson and Phillips Hawkins approved this Bosch- 
Swiss agreement without obtaining the concurrence of Brigadier 
Oxborrow, the British decartelization chief, as required by the rules 
Mr. Hawkins himself had drafted. No one had fully investigated 
charges that the Industrial Products Trading Corporation of Zurich 
was, in fact, a Bosch dummy with the controlling interest held by 
the Ghertsos brothers for the beneficial interest of German Bosch. 

Another curious feature of the Bosch-Swiss agreement was that 
Bosch agreed to sell its products to the Industrial Products Trad- 
ing Corporation at a price payable in German marks far below the 
price schedules previously maintained by Bosch. This would enable 
the Swiss company to sell the products abroad at considerably 
higher prices and to accumulate the excess foreign exchange in 
dollars or other hard currencies outside the reach of the occupy- 
ing powers. 

The "new interpretation" of the anticartel policy was not con- 
fined to cases of companies involved with foreign ownership, like 
Bosch. On November 10, 1948, the military governments of the 
American and British zones published Law No. 75 covering "Re- 
organization of German Coal and Iron and Steel Industries." The 
new law recited its purposes as follows: 

It is the policy of Military Government to decentralize the Ger* 

man economy for the purpose of eliminating excessive concentra- 
tion of economic power and preventing the development of a war 
potential. . . . 

Military Government has decided that it will not allow the 
restoration of a pattern of ownership in these industries which 

would constitute excessive concentration of economic power and 
will not permit the return to positions of ownei-ship and control of 
those persons who have been found or may be found to have 
furthered the aggressive designs of the National Socialist 
Party. . . . 


li IS therefore or defied: The enterprises enumerated in Schedule 
A of this Law are hereby declared to be excessive concentrations of 
economic power or otherwise deemed objectionable and therefore 
subject to reorganization within the purview of Military Govern- 
ment Law No. 56 Prohibition of Excessive Concentration of Ger- 
man Economic Power. The controlling companies in each of 
these enterprises shall be put into liquidation forthwith and a 
liquidator appointed, or current liquidation proceedings confirmed, 
as the case may be. . . . 

The schedule of twenty-six top holding companies to be liqui- 
dated included twelve steel combines, the Rhenish-Westphalian 
Coal Syndicate, and thirteen other operating coal combines. The 
twelve steel combines were United Steel, Krupp, Mannesmann, 
Klockner, Hoesch, Otto Wolff, Good Hope, Ilseder, the Goring 
complex, the Flick complex, the Thyssen group, and the Stinnes 
complex. Another schedule listed four public utilities or govern- 
ment-owned industrial combines whose assets were to be seized, 
including the Rhenish-Westphalian Electric Company, and the 
government-owned United Industrial Enterprises, Incorporated. 

To carry out the changes in the ownership and management of 
the steel firms. Law No. 75 provided that: ''A Steel Trustee Associa- 
tion consisting of German nationals shall be established for the 
purpose of assisting in decentralizing and reorganizing the iron 
and steel industry. The members of the Association shall be ap- 
pointed by or under the authority of Military Government, after 
consultation with the appropriate German bodies." 

General Clay turned over to the Germans themselves the job 
of picking twelve German trustees to make up the Steel Trustee 
Association. The assignment fell in the first instance to the Ger- 
man president of the executive council of the Bizonal Economic 
Administration, Dr. Hermann Puender. In January 1949 Dr. Puen- 
der asked trade-union leaders to help him pick the slate of German 
trustees. The trade-unionists soon left the conference, after refusing 
to accept the Puender slate, which included eight representatives 
from among the very combines that were to be "reorganized." 

The eight combine men were: Dr. Werner Albert, former Nazi 
Party representative on the board of Mannesmann, and a Wehrwirt- 


schaftsjuhrcr or **Ieader of the war economy"; Hermann J. Abs, di- 
rector of the Deutsche Bank; Heinrich Dinkelbach, managing 
director of United Steel and successor to Ernst Poensgen in the 
International Steel Cartel; Giinther Henle, grandson of Peter 
Klockner, who succeeded Klockner as chairman of the family steel 
combine in 1940; Giinther Sohl, Nazi Party representative on the 
boards of United Steel, Krupp, and other big steel works; Karl 
Barich of the Rhenish AVestphalian Electric Company; Friedrich 
Wilhelm Engel, director of Hoesch; and Herbert Mondon, for- 
merly of the Goring combine and deputy chairman of the Iron 
and Steel Association, Only four of Dr. Puender's twelve came 
from outside the top ranks of the big steel combines: Dr. Victor 
AgartZj former chief of the Bizonal Economic Administration; Dr. 
Heinrich Deist, German civil servant; Heinrich Meyer, former 
trade-union secretary; and Gerhard Schroeder, former Nazi gov- 
ernment attorney. 

This demonstration of how Dr. Puender^s mind tended to run 
was not enough to get him fired as economic chief to Bizonia. Gen- 
eral Clay merely announced that he thought not more than three 
of the twelve trustees should come from among the former owners 
of the combines, and said that he and Genera! Sir Brian Robertson, 
the British Military Governor, would have the last word in approv- 
ing the steel trustees. 

Dr. Puender himself had had previous experience with shaping 
the thoughts of his German colleagues* During the war he served 
as a lieutenant-colonel in the Truppen Abwehr of the Army High 
Command, the counterpropaganda service. He was in Division 
IIl'H, the division concerned with preserving morale and correct 
Nazi ideology in the military forces. When this record of Dr. 
Puender's service was reported in the American press in Drew 
Pearson's "Washington Merry-Go-Round" column, former Chan- 
cellor Briining immediately rose to the defense with the claim that 
Puender actually was a vigorous anti-Nazi who was one of several 
who "infiltrated" the Abwehr organization as part of the German 
"underground/* Dr. Bruning pointed out that Puender was ar- 
rested in connection with the 1944 bomb plot against Hitler; though 
he did not go on to explain that over four thousand people were 


executed for their direct or indirect connections with that plot. 
Perhaps Dr. Puender was so clever at infiltration that his complicity 
was never discovered. But an even more important question which 
Dr. Bruning did not answer was why an anti-Nazi and a former 
member of the German "resistance" picked such a slate of steel 

As if to underline the probable future of the "international" con- 
trol of the Ruhr, dispatches from Germany dated February 25, 
1949, in addition to naming Dr. Puender's twelve proposed trus- 
tees, also named four representatives of the United States Steel Cor- 
poration and one of Inland Steel who were to be the American 
members of the international Ruhr trusteeship commission. Among 
them was Ian F. L. Elliott, the representative of United States 
Steel ia Europe who in the years immediately before World War II 
had participated in the management of the International Steel Car- 

The constantly accumulating evidence of defeat of the American 
reform policies for Germany reached a climax in the spring of 1949. 
Almost immediately after the November election of 1948, President 
Truman had directed Secretary of the Army Kenneth C, Royall to 
dispatch to Germany an investigating commission that had been ap- 
pointed several months before, but had been waiting for orders 
to proceed. The commission was headed by Garland S. Ferguson, 
a member of the Federal Trade Commission. The other two mem- 
bers were Samuel S. Isseks, New York lawyer nominated by Attor- 
ney General Tom Clark, and Andrew T. Kearney, business man- 
agement expert nominated by Paul G, Hoffman, head of the 
Economic Co-operation Administration. As legal counsel to the com- 
mission, Secretary Royall appointed Charles Fahy, former Solici- 
tor General, who had also served for over a year as director of the 
Legal Division in Germany. To assist the commissioners, the De- 
partment of the Army appointed John C. Stedman, a section chief 
in the Antitrust Division; William H. England, former chief econ- 
omist of the Federal Trade Commission; and Norman Mitchell, 
assistant to Mr. Kearney. 

The Ferguson commission held hearings in Germany in Decem- 
ber 1948 and in Washington in January and February, 1949. Their 


specific purpose was to investigate the effect of General Clay s or- 
der of March 9, 1948, rejecting the test cases under Law No. 56, 
reinterpreting the meaning of the anticartei poUcy, and requiring 
a substantial reduction in the size of the Decartelization Branch. 

In a report of one hundred and thirty-six pages, dated April 15, 
1949, the Ferguson commission found that the basic policy of 
eliminating the cartels and big combines was sound, and that "this 
policy should have been, and should now be, energetically en- 
forced." The report commended the decartelization lav/, Law No. 
56, as a reasonable and necessary regulation, and also found that 
the program as we had originally designed it was reasonable. The 
commissioners found no evidence to substantiate the charge that we 
had proposed to '^break up" German industry into unworkable 
fragments. The four-volume resume of the cartel and combine 
problem was an "adequate starting point" for the activities of the 
branch once the law was passed. 

Turning to the reasons for failure of the program after the en- 
actment of Law No. 56, the commissioners criticized the unneces- 
sarily complicated procedures worked out by Messrs. Wilkinson, 
Hawkins, and Bronson in the latter half of 1947. They also re- 
ported that these men "with direct responsibility for carrying out 
the work of the Decartelization Branch have not had the record 
of accomplishment in connection with decartelization, and par- 
ticularly with deconcentration, that one would like to see in per- 
sons in such positions.'* The report cited evidence, too, that "some, 
including those who are responsible for the review of actions, have 
not always been in complete sympathy with the program." 

The commissioners examined very carefully the claim that the 
elimination of "excessive concentration of economic power" would 
interfere with German recovery, and found no evidence to sub- 
stantiate that claim. 

The Department of the Army took no steps to carry out the 
recommendations of the Ferguson report. The actors gradually 
drifted out of the spotlight. General Draper, who had become 
Undersecretary of the Army in 1947, resigned and went back to his 
job as vice president of Dillon, Read & Company just before the 
report was filed. General Clay*s retirement, originally set for July i, 


1949, was suddenly announced, to be effective May 15, in a release 
issued from the White House a few days after the Ferguson report 
was published. Lawrence Wilkinson and Phillips Hawkins stayed 
in Germany for a few months after John J. McCloy assumed office 
as civilian High Commissioner, then quietly resigned. Richardson 
Bronson stayed on a httle longer, then returned home. 

Only two men were hurt directly by the Ferguson investigation: 
both of them men who were summoned before the commissioners 
to give evidence. One, Charles H. CoUison, who had run with the 
hounds during the disagreement between Bronson and the nine- 
teen members of the professional staff at Berlin, later gave damag- 
ing testimony to the investigators on Bronson *s mishandling of the 
program. Bronson retaliated by firing CoUison; and although a 
review board found that his discharge had been unjustified, High 
Commissioner McCloy announced that CoUison would have to go 
anyway because the Decartelization Branch was again being "re- 

The other casualty was Alexander Sacks who, upon being asked 
to account for the failure of the program, had replied in part: *'The 
men charged with the highest responsibility by the Commander-in- 
Chief have failed to carry out the explicit orders of the July 15, 1947 
Directive to the Commanding General and Military Governor in 
Germany. The policies of the Roosevelt and Truman Administra- 
tions have been flagrantly disregarded by the very individuals who 
were charged with the highest responsibility for carrying them out. 
. . . It is no secret that the operations of the decartelization pro- 
gram have been hampered by Major General Draper and his asso- 
ciates in Military Government , . • They have done whatever they 
could, by innuendo and misstatement, to discredit a program which 
they either did not understand, or did not like.'* 

For speaking these convictions, which the Ferguson report later 
substantiated, Sacks was fired at the insistence of Lawrence Wilkin- 
son on the charge of "making statements attacking the integrity 
and good faith of the Undersecretary of the Army and of key 
United States Military Government officials charged with the im- 
plementation of the decartelization program in the United States 
zone of Germany." When Wendell Berge, former head of the Anti- 


trust Division, took up the case, Sacks was reinstated pending the 
completion o£ the report of the Ferguson commission. Then, even 
though the findings of the commission verified Sacks's charges, 
General Clay in one of his last official acts, on May 14, 1949, the 
day before he left Germany, ordered the resumption of proceed- 
ings against Sacks. Eventually Alexander Sacks was ''cleared'' by 
a three-man hearing board at Berlin. He was reinstated in his posi- 
tion with another branch of the military government organization. 

In December 1949, the ofBcc of the United States High Commis- 
sioner, John J. McCioy, hired a group of lawyers to form a new 
Decartelization Branch- The new recruits included several with 
previous experience in antitrust law enforcement. They were not 
noticeably better or worse qualified than the staff which bore the 
brunt of the fight from 1945 to 1948. 

By December 1949, however, there was already talk of including 
Germans in western European military forces. A western German 
government was in the saddle, committed to a program of old-line 
''free enterprise.'* Hermann J. Abs visited the United States to ar- 
range a settlement of the defaulted dollar bonds of the 1920*8, to 
pave the way for new private loans to west German heavy indus- 
tries. Baron Georg von Schnitzler, Emil Puhl and others were 
paroled from prison, just in time to join the parade. 

A flourish of trust busting at that late date might have savecj 
the surface. But could it have saved all? 


Microcosm and Macrocosm 

OUR government could not muster the determination and constancy 
of purpose to match the dogged persistence of the fraternity brothers. 
The military government in Germany could not contend with a 
small clique of Germans because the interests of these aging repre- 
sentatives of Germany's New Order were integrated with the in- 
terests of powerful corporations in the United States. Yet these 
powerful corporations which were able to frustrate the intentions of 
our government derive tlieir powers by consent of the government. 

As governments are now set up, they unleash powers which they 
cannot controL The State of Delaware, by virtue of its power as 
a sovereign state, may charter I. du Pont de Nemours and 
Company, and so give it a legal existence. Or New Jersey may 
create a Standard Oil Company. Such organizations can, and often, 
do, follow private goals that clash with the public interest, while 
the governments which harbor them look on ineffectually. We 
niight as well ask a match to control the forest fire it has started 
as to ask Delaware to control Du Pont, or New Jersey to curb 
Standard Oil, or, for that matter, Luxembourg to abolish the In- 
ternational Steel Cartel. 

In the spring of 1947 Johnston Avery and I did make a trip to 
Luxembourg to ask the government of the Grand Duchy to order 
the dissolution of the International Steel Cartel. We had previously 
refused to allow representatives of the Arbed steel combine to en- 
ter Germany and inspect their properties in our zone. Our reason 
was that Aloysc Meyer, the former collaborationist, was still man- 
aging Arbed, and was keeping the cartel offices and organization 
intact for future use. The Luxembourg government had protested 



to the State Department about our exclusion order. We went and 

discussed the deadlock with Prime Minister Pierre Dupong, For- 
eign Minister Joseph Bech, and the Economic Minister, Guill 
Konsbruck, who was also a director of Arbed and chamberlain to 
the Grand Duchess Charlotte. The answer of the Luxembourgers 
was, in effect, that they would not dissolve the cartel because they 
could not. 

A Uttle government like that of Luxembourg might not be ex- 
pected to stand up to an international power complex. But what 
about a larger government? The government of the United States 
took no action throughout the war to halt American participation 
in the Bank for International Settlements at Basle, Switzerland, a 
private international bank founded by Dr* Hjalmar Schacht when 
he was president of the Reichsbank. This bank was set up after 
World War I in connection with the Dawes and Young plans, sup- 
posedly to help foreign-exchange transactions among the countries 
that were to receive reparations from Germany. After reparations 
payments were abandoned, the bank went on acting as a regulator 
of foreign exchange and funneled foreign investments into German 
enterprises- During World War II, its president was an American, 
Thomas H. McKittrick, though the Germans held the controlling 
interest as before* Around a common table, American, French, Ger- 
man, Italian, Swedish, Swiss and Dutch bankers transacted their 
business as in peacetime. In addition to Dr. Schacht, Erail Puhl, and 
others from the Reichsbank, Baron Kurt von Schroder, the Cologne 
banker, and Paul Reusch of the Good Hope combine were members 
of the German contingent. 

The International Monetary Conference at Bretton Woods in 
July 1944 anticipated postwar problems of foreign exchange in 
Europe. The conference determined that financial matters of such 
key importance to the economy of all European nations must not be 
left under the control of a privately run international bank. The 
conference adopted a resolution specifically barring from the Inter- 
national Monetary Fund and the International Bank for Reconstruc- 
tion and Development any nation which had not broken completely 
with the Bank for International Settlements. The United States was 
a party to the Bretton Woods agreement. 


The American president of the bank, Mr. McKittrick, apparently 
shared none of the views of the International Monetary Conference 
about the Bank for International Settlements, nor the official de- 
termination of the United States to change the pattern of German 
economic domination in Europe. In May 1944, just before D Day, 
Mr. McKittrick was quoted as saying: "We keep the machine tick- 
ing because when the armistice comes, the formerly hostile powers 
will need an efficient instrument such as the B.LS." 

Mr. McKittrick remained as president for two more years after 
the Bretton Woods resolution, and his "efficient instrument'* never 
stopped ticking. In the autumn of 1948 the "efficient instrument" 
quietly moved in to become an agency for clearing foreign-exchange 
transactions among the countries participating in the European Re- 
covery Program. Mr, McKittrick himself, by then a vice president 
of the Chase National Bank, became for a time financial adviser to 
W. Averell Harriman, roving ambassador in Europe of the Eco- 
nomic Co-operation Administration. 

Many questions about the operation of the Bank for International 
Settlements during the war have never been answered. Mr. 
McKittrick has not disclosed the arrangements which enabled the 
Nazis to ship to the Bank for International Settlements large quan- 
tities of gold looted from various countries in occupied Europe, 
worth hundreds of millions of dollars. No accounting has yet been 
made of it. Dr. Emil Puhl, the vice president of the Reichsbank, 
when picked up for questioning after we entered Germany, revealed 
that the last time he went to Switzerland in April 1945, a few days 
before the final collapse of Germany, he had succeeded in getting 
his friends to defer the publication of the bank*s financial statement 
because he wanted to conceal the extent of the Nazi gold transac- 

What we do know definitely is that over four hundred million 
dollars in German assets, spirited out of Germany before the end 
of the war, never have been traced. These funds are now being used 
somewhere in the world by ex-Nazi Germans and their friends. 
They can finance propaganda and German nationalist "recovery" 
programs at will. We know that in Spain, Portugal, and Argentina 
there are large colonies of ex-Nazis showing no signs of money 



worries. The same is true in Sweden and Switzerland. No one 
knows whether any of the "spontaneous" sympathy in the United 
States for a resurgent Germany is the product of a well-paid public 
relations program. Emil Puhl^ the man who convened the gold 
teeth and jewelry from SS concentration camps into a great 
part of this four-hundred-million-doUar fund, was paroled from 
prison in December 1949 by order of the High Commissioner's 

If most people agree that some powers now being wielded by 
private bodies ought to be regulated in the public interest, we are 
still far from agreement on how to devise government agencies that 
can do the regulating. In September 1946 the United States proposed 
a charter for an International Trade Organization, which would 
work through the Economic and Social Council of the United 
Nations. The purpose of this International Trade Organization, or 
ITO, was to end the existing anarchy and provide an umpire for the 
world*s trade. Specific functions would be to expand opportunities 
for trade and economic development; aid the industrialization of 
underdeveloped countries; and promote the expansion of produc- 
tion, the exchange and consumption of goods, the reduction of 
tariffs, and the elimination of monopoly practices and trade dis- 
Negotiations on behalf of the United States during the various 
in-ter national conferences on the ITO were handled by William 
Clayton, Undersecretary of State for Economic Affairs, advised by 
a staff of businessmen including Philip D. Reed, chairman of the 
board of General Electric and president of the International 
Chamber of Commerce. It was Mr, Reed who, at Berlin, in Decem- 
ber 1946, insisted that nothing needed to be done in Germany to 
curb cartels and monopolies, because the new ITO provision against 
restrictive practices in international trade would be enough. Actu- 
ally, I found that the ITO provision was nothing more than an 
agreement to investigate alleged restrictive practices and to make 
''recommendations" to the governments concerned. 

The ITO was also to bring about reductions of tariffs and other 
barriers to international trade. When schedules of tariff reductions 
were agreed upon after a long conference in 1947, 1 became interested 


in this first concrete action intended to free the channels of inter- 
national trade. 

One item that stood out in the new tariif schedules was a reduction 
of the duty on imports of aluminum into the United States. I paid 
particular attention to this cut, because I knew nothing had yet been 
done to dissolve the international aluminum alliance. It would 
seem that the alliance, with its fixed quotas, could prevent a 
competitive flood of aluminum from overseas. What, then, would the 
tariff reduction accomplish? 

The meaning of this tariff reduction becomes clearer in the light 
of the aluminum industry's development in the United States. 
Until Reynolds Metals and Henry J. Kaiser's Permanente Metals 
entered the field during the war, the Aluminum Company of 
America, or Alcoa, formed in 1888, and the Aluminum Company 
of Canada, or Alcan, formed by Alcoa in 1901, had been the only 
aluminum producers in the whole western hemisphere. Alcoa kept 
its position as the only producer of primary aluminum in the 
United States for over fifty years by avoiding foreign and domestic 
competition. Foreign competition was knocked out by the inter- 
national alliance. The matter of eliminating domestic competition 
followed the usual pattern: use of patent litigation to squeeze out 
some competitors, absorbing other companies, buying up sources of 
raw materials and power, and other moves that are familiar in the 
growth of a large trust. 

With the outbreak of World War II, Alcoa faced competition for 
the first time. Between 1941 and 1945, Reynolds and Kaiser broke 
into the field on the heels of a drastic aluminum shortage. The effect 
was spectacular. While other nonferrous metals such as electrolytic 
copper increased 71 per cent in price on the American market in the 
six years from 1940 to 1946, and while lead increased 142 per cent 
and zinc 62 per cent, the price of aluminum dropped 30 per cent. 

A battle of the giants began. From the start, in 1941, Alcoa had 
the inside track with better sources and lower costs for electric 
power. Since power is the biggest cost in aluminum production, it 
was no small advantage that Alcoa's Canadian producer, Alcan, 
had a large hydroelectric site on the Saguenay River. By a series of 
government grants, both Canadian and American, Alcan at the 


end of the war had nearly paid for all its new power plants and 
could produce electricity at one half mill per kilowatt hour. This 
compared with rates of from three to three and one half mills 
charged by the TV A, two mills by Bonneville, and six mills in the 
metropoHtan New York area. 

In order to get a power supply at all, Reynolds had to set up most 
of its pot-lines in the Tennessee Valley where the rate was 3.14 
mills. Even in the case of TVA power, Alcoa had the advantage. 
Alcoa in 1937 had made a long-term contract with TVA for power 
at 2.74 mills. In 1940, when TVA charged Reynolds the higher rate, 
the reason given was that the 1937 contract with Alcoa set an im- 
providently low rate; but, since two wrongs do not make a right, 
the TVA could not make the same mistake again. 

When it came to government financing of plant expansion, the 
principle of business "soundness** entered. Reynolds got loans 
totalling $46,000,000 from the Reconstruction Finance Corporation 
at an interest rate of 4 per cent. The loans had to be secured by 
liens on all properties of Reynolds and its subsidiary corporations. 
Alcan, on the other hand, as a "sound,'* going concern in the 
aluminum business, got an advance of $50,000,000 from the RFC- 
controlled Metals Reserve Corporation without interest or security. 
After the Truman Committee crkidzcd this loan, Metals Reserve 
did impose an interest rate of 3 per cent, but increased the principal 
to $68,500,000. 

Again because it was an "established business,'* Alcan received 
a contract from Metals Reserve, under which Metals Reserve was 
obligated to buy a large quantity of aluminum at the full market 
prices, with additional guaranteed payments to offset increased costs 
due to war conditions. When the Truman Committee looked into 
this contract in March 1944, Metals Reserve had already paid Alcan 
$36,000,000 in these additional payments alone, and was committed 
to underwrite such extra payments up to a total of about $58,000,000, 
besides paying the full price for tlic aluminum delivered. Reynolds, a 
newcomer, got no firm orders from the government. It had to take 
its own chances on continuing needs for aluminum; and it had to 
absorb additional costs, on its own, without guarantees or escalators. 
The story of the Kaiser aluminum firm was similar. 


In spite of the advantages enjoyed by Alcoa, its two competitors, 
Reynolds and Kaiser, made out well enough while the war was on. 
That brings us to the tariff reduction in 1947. Reynolds and Kaiser 
were by that time living dangerously on the fringe of the league. 
The relative standings in the industry are enough to indicate the 
strength of the contestants. In the United States, Alcoa had a ca- 
pacity of 878,000,000 pounds; Reynolds, 474,000,000; Kaiser, 270,- 
000,000. In Canada, Alcan sat across the line with a capacity of over 
one biiiioa pounds, power costs of one half cent per pound, and a 
new tariff of only two cents per pound, as against average power 
costs in the United States for all other producers of three and one- 
half cents. As a result of the "removal of restrictions on trade" by 
the International Trade Organization, Alcan had a clear margin to 
cut prices below the costs of Alcoa's competitors, if necessary. To 
preserve Alcoa's position as leader, Alcan could wade in and ''police" 
the industry by threatening a price war. The tariff reduction itself 
had no immediate effect on the price of aluminum in the United 
States, Alcan immediately increased its prices by exactly the same 
amount to offset the tariff reduction. 

What happened in aluminum fits into a pattern that is already 
familiar. In our examination of the International Steel Cartel, we 
had noticed how the three biggest American steel corporations. 
United States Steel, Bethlehem, and Republic, improved their posi- 
tion in the international cartel as they became better able to assume 
responsibihty for the "correct" behavior of their competitors. With 
this point in mind, I turned from aluminum to see what had hap- 
pened in the steel industry since the war ended. The record showed 
some notable peculiarities in the behavior of certain government 
agencies which were supposed to aid production and prevent restric- 
tive practices. 

Before the war, the Big Three accounted for some 47,000,000 of 
the 80,000,000 tons of steel capacity in the United States, or about 
58 per cent of the total. During the war, the government spent 
nearly $800,000,000 on new steel plants and about $300,000,000 more 
on additions to existing steel plants. Private companies invested a 
billion dollars in expansion of their own facilities. After all this 
expansion the Big Three of the steel industry, by 1948, still accounted 



for 58 per cent of the total ingot capacity in the United States, which 
was then about 95,500,000 tons. 

This was before the Surplus Property Administration and the War 
Assets Administration disposed of the large new plants. The biggest 
of these was the Geneva Steel Company at Geneva, Utah, with a 
capacity of nearly 1,300,000 tons per year, built by the government 
at a cost of more than $200,000,000, and operated by United States 
SteeL Control of Geneva tripled United States Steel's capacity in 
the Far West. Early in 1947, the War Assets Administration allowed 
United States Steel to acquire the Geneva plant for $45,500,000, or 
23 per cent of the original cost to the government. 

By way of contrast, the wartime and postwar experiences of 
Henry J. Kaiser in establishing steel-making facilities in the Far 
West show a type of problem that may be faced by any outsider who 
happens to collide with business in government. 

Early in 1941 steel shortages put a crimp in shipbuilding opera- 
tions on the West Coast. Partly to get the necessary steel, and partly 
because the western cost of steel is much higher than the cost of 
similar products in the East, Kaiser wanted to build a plant and 
make his own heavy plates, structural shapes and merchant bars. 
Since he had no standing as an established producer in the steel 
industry, Kaiser could not get the government to erect the plant 
for him. Instead, the financial assistance had to come through loans 
from the Reconstruction Finance Corporation. In the end, a steel 
plant was erected at Fontana, California, at a cost of $111,800,000. 

In building the plant, certain technical difficulties arose because 
of wartime conditions. In 1942, the War Department's Plant Site 
Board decided that the plant could not be located on tidewater, 
close to large industrial water supplies and cheap ocean shipping 
facilities. Instead, for security against "possible enemy attack,*' the 
Plant Site Board decided that it had to be located in an area back of 
the San Bernardino Mountains which was accessible only by rail- 
The region was arid. In order to operate there at all, engineers had 
to design elaborate facilities for reusing water. The War Production 
Board, on its part, refused authorization to erect a slabbing and 
blooming mill because of the wartime shortage of machinery and 
equipment. The engineers had to use the m.uch m.ore costly "bottom- 


pour'* method of producing small, slab-sized ingots. This meant 
that, from the standpoint of postwar production and marketing, 
the plant would always have a costly bottleneck in the ingot stage. 

Because the Fontana plant was built for a special emergency 
purpose, it was a lopsided affair. It had far greater capacity for 
plates and heavy sections thaa was likely to be needed in peacetime 
when shipbuilding and heavy construction subsided. The plant 
lacked facilities for rolling lighter sections, strip, sheets and tin 
platCj and without them was likely to be a postwar white elephant. 

After the war, Kaiser proposed to stay in the steel business and 
sell to West Coast customers at prices less than the prevailing West 
Coast "diilerential" of the Big Three. Under the "differential," or 
basing point, system of fixing delivered prices for steel, western 
prices had averaged about $12 per ton higher than in the east. The 
$12 corresponded to the cost of water transportation from Sparrows 
point, Maryland, to the Pacific Coast. To cut costs, Kaiser tried to re- 
negotiate the Reconstruction Finance Corporation loan to scale down 
at least part of the difference between the actual wartime con- 
struction cost of nearly |i 12,000,000 and the RFC*s own estimate of 
the peacetime value in 1945, which was $58,000,000, 

The RFC announced that it had no power to consider anything 
but straight banking practice. Under straight banking practice, 
Kaiser had hired the money. Any considerations such as keeping the 
plant in operation, or maintaining western industrial development 
and employment, were not within the province of the RFC. 

In contrast with United States Steels purchase of the Geneva 
facilities at 23 per cent of the original cost, the RFC held the 
Kaiser companies bound to repay $103,000,000, the full wartime cost 
minus estimated depreciation of $9,000,000. The RFC did make one 
concession in offering to lend an additional $11,500,000 to help with 
reconversion expenses. This added amount, however, must not be 
used to add the strip and tin-plate facilities needed for peacetime 

This application of "banking practice" to the problem produced 
an interesting result. Under the RFC plan, the fixed charges for 
retirement of the Fontana debt would be at the rate of $to.t6 per 
ton of ingots produced, even when operating at full capacity. If 



the plant operated at less than capacity, the fixed charges per ton 
would gradually rise. If the plant operated at only 60 per cent of 
capacity, the fixed charges per ton would be $16.93. These fixed 
charges per ton demanded by the RFC just happened to average out 
to equal the West Coast differential of $12 maintained under the 
basing-point system of the established steel enterprises. In com- 
parison, the average fixed charges of the rest of the steel industry in 
the United States ranged from $.78 per ton when operating at 
capacity, up to $1.30 when operating at 60 per cent of capacity. The 
net effect of the RFC ruling, therefore, was to make it impossible 
for Fontana to sell steel competitively on the West Coast at a price 
less than the western differential already set by the Big Three. 

With the growth of economic giants operating in a world-wide 
economy, government has become involved in activities that used 
to be regarded as "business " Whatever the forces may be that have 
pushed government into its new role, it seems that government 
has become transformed in the process so that it now behaves like a 
big corporation. The problem that must now be solved is that of pro- 
tecting the whole interest of society. We cannot allow the lack of 
social responsibility characteristic of the international behavior of 
private corporations during the last quarter-century to become a pat- 
tern for government. 


Angels and Men 

SINCE our government shows signs of behaving like a big cor- 
poration some people have suggested that the responsibility of the 
government to the citizens of the nation should be the same as that 
of a corporation's officers to the stockholders. At first glance the idea 
is persuasive, translating an abstract problem in government into 
everyday commercial terms. Some annual reports of the Tennessee 
Valley Authority, for example, have been phrased like a business 
corporation's annual report, addressing the citizens as if they were 
stockholders. To a great extent, however, this sort of make-believe 
merely obscures the problem, which is to get economic power under 
some kind of responsible control. 

It may be true that we expect from the government a responsi- 
bility for the public interest at least as keen as that which the stock- 
holders of a private corporation have a right to expect from the 
management. But experience has shown that corporate manage- 
ments arc under very little control from their stockholders and do 
pretty much as they see fit. The growing supremacy of "manage- 
ment** was noted in the United States during the early thirties by 
several official investigations into the behavior of corporations. 
It was found that the legal owners had lost effective control of most 
largTe corporations. Managements had become self -perpetuating and 
stockholders' meetings were largely rubber-stamp affairs. In the 
light of such findings, it would be a naive stockholder who today 
expected to exercise control over the management- Governments 
have begun to behave in the same way. 

Making a government powerful enough to keep things under 
control has always raised the specter of big government. The writers 


of the Federalist Papers in 1788 described the dilemma of a con- 
stitution-maker in the following way: "I£ men were angels, no 
government would be necessary. If angels were to govern men, 
neither external nor internal controls on government would be 
necessary. In framing a government which is to be administered by 
men over men, the great difficulty lies in this: you must first enable 
the government to control the governed; and in the next place 
oblige it to control itself." 

We are in the same difficulty today. We have to enable the gov- 
ernment to control economic power instead of becoming its tooL 
Since power is a public trust, the first job of a government is to 
see that power is used in the public interest and not against it. This 
is where a government must be different from a corporation, and 
where the comparison of citizens to stockholders breaks down. The 
German government was far more responsive to the management 
of the big corporations than to the citizens as such» 

By chartering a private corporation, a government delegates to 
the corporate body some part of its own power to regulate com- 
merce. Strictly speaking, this is an abdication by the government, 
giving up part of its authority to regulate matters affecting the 
public interest* Under corporation law the first job of a corporate 
management is not to promote the general welfare, but to promote 
the interest of the corporation. On a small scale, as in the past, this 
relinquishment of power has done no visible harm and the practice 
has been generally accepted. If the corporation does interstate busi- 
ness, however, this encroachment by the corporation on the gov- 
ernment's power to regulate can be considerable. And if the cor- 
poration becomes a United States Steel, it can be overwhelming. 

National governments in all parts of the world have granted 
power over segments oi their national economies to various cor- 
porations. Over the years, these pieces have been combined in new 
forms on an international scale as the larger corporations, by agree- 
ment among themselves, have built a private ''world govern- 
ment." This new order, stretching far beyond the boundaries of any 
one nation, has operated under no law except the private law of the 
agreements themselves. 

It is time to view the results of this abdication by constitutional 


governments in favor of private governments. The occupation of 
Germany has already provided a good laboratory in which we could 
study the activities of self-centered corporations and the activities of 
a German national government in which these corporate combines 
had a dominant influence. Our observations in postwar Germany did 
not support the theory that the Nazi regime was a runaway affair. 
Propaganda has been turned out in an effort to convince people 
that the industrialists who backed the Hitler coup did not realize 
they were opening a Pandora's box. We are to believe that the 
troubles they set loose plagued them no less than the rest of man- 
kind. On the contrary, from all that we couid gather in talking with 
German industrialists, the big-industry group in Germany regrets 
the Hitler period only because the Nazis lost the war. We found no 
evidence that the leading industrial groups had acquired a funda- 
mental distaste for German nationalism as such. They are still 
working toward the organization of Europe in such a way as to 
support a dominant German industrial economy, and the organiza- 
tion of Germany s own economic life around a concentration of 
heavy industries. 

Except for its military outcome, the Nazi experiment appears 
to have been a success in the eyes of its original sponsors. The unity 
of German business and finance in backing the Nazis was matched 
only by the precision with which the Nazi government moved in 
to support the aims and interests of the dominant financiers and 
industrialists. They, in turn, have been waging a hard postwar fight 
to keep the economic lines of the Nazi system intact. 

The Nazi effort came as near to military success as it did because 
German military planners took advantage of the lessons of geo- 
politics. The relation of strategically placed land masses and na- 
tional resources to the control over larger areas of the earth's surface 
had been studied with great care not only by Professor Haushofer 
and his "geopolitical institute" but by a great number of other Ger- 
man scientists, economists, and political analysts. In the same way, 
the German planners shaped the economic war, not only as a supple- 
ment to military operations, but as a substitute to hedge against 
military defeat. The German high command made use of what we 
might call ecopolitical organizations, combining both economic and 


political forces under common control. Though they had no Geo- 
political institute labeled as such, the Germans arranged the strategic 
control of large areas of economic activity both at home and abroad 
by maintaining control of bottleneck points. It was this feature of 
the "cartel system" that Genera! Clay and his economic advisers 
tended to ignore, placing their chief emphasis on so-called "war 

The German ecopolitical organizations — LG. Farben, United 
Steel, the Deutsche Bank and Dresdner Bank and all the rest — did 
not die with the dismemberment of the German military machine. 
When our mihtary government took over, the Germans had the 
stage set for really fatal blunders on our side* The occupiers failed 
to realize that the German ecopolitical forces still existed and that 
their complete overhaul was a first order of business. Instead, by 
delaying reorganizations and by taking the leaders of the combines 
into the management of the new economic revival. General Clay's 
military government entangled itself with the very forces it came 
in to crush. 

Some of the reform steps originally proposed in 1945 could have 
had the immediate effect of removing obstacles that stand in the 
way of democratic developments in Germany. Suppose that we had 
been allowed to exclude the managers of the big combines from 
positions of power. Suppose we had been allowed to issue the laws 
we drafted to prohibit bearer shares^ the device through which 
the big banks got control without having capital to invest. Sup- 
pose we had been allowed to issue our law limiting interlock- 
ing directorates and interlocking officeships. Suppose we had 
been allowed to repeal the laws requiring a license to engage in 

A strict enforcement of these regulations during the early years 
of the occupation would have removed at least temporarily the 
power of Hitler's backers and others like them. They could not 
have dominated the scene during the formative years, as they have 
done. They would not have been able, as they have done, to suppress 
the efforts of other Germans to reconstitute their economic life on 
another basis. Furthermore, during the years of occupation, new 
vested interests, decentralized in character, could have been de- 


veloped in all parts of Germany under the protection of the new 

It might be argued that once the occupation forces were with- 
drawn, a German legislature could repeal such laws and restore the 
status quo. That view overlooks an important argument in favor of 
the experiment. Even when occupation forces were withdrawn, it 
would have been possible to hope that the new interests established 
during the occupation might assert themselves and block any 
sweeping move by the old guard to repeal the laws and return to the 
old basis. Meanwhile, those of the old guard who had been ousted 
would have lost some of their power. They would have become 
**has-bcens," a group of old men who could not effectually train a 
new generation to follow the old Une because they would not have 
had the prospects to offer new recruits. 

Back in September 1944, President Roosevelt had stated very 
clearly that the occupation forces were not going into Germany to 
feed the German people and promote their economic recovery. They 
were not going in just to see that war materials were not manu- 
factured. They were going in to bring about a basic change in the 
economic and pohtical system that had made the Nazi war possible. 
He made these remarks in expressing his total disapproval of 
a proposed "guide" which the War Department had drafted for 
the use of military government officials. We have already quoted 
some excerpts from President Roosevelt's letter to the Secretary 
of War on that occasion. Two years after the Roosevelt pro- 
nouncement, however, Secretary of State James F. Byrnes, in a 
speech delivered at Stuttgart on September 6, 1946, set out a policy 
for Germany in. terms that could hardly be distinguished from 
those of the guide that President Roosevelt had so vigorously 

General Clay, in his own memoirs, acknowledges this funda- 
mental shift in policy which, without ever being announced as a 
basic change from the Roosevelt policies, colored the entire picture 
of the military administration in Germany. He describes the dis- 
gruntlement of the Economics Division over the presidential veto 
of their proposals for rebuilding Germany along the old lines. 
Here is how it looked to General Clay : 


When I arrived in Paris I had heard only vaguely of the U. S. 
Group Control Council which was now under my command, and 
knew litde of its functions. I did know that, while the actual super- 
vision of military government was a staf? function of Supreme 
Headquarters, there was an American group planning our partici- 
pation in military government after the defeat of Germany and 
the dissolution of combined command. I had heard that this group 
had prepared a manual for military gov^ernment that aroused 
indignation in Washington because allegedly it proposed a liberal 
treatment of Germany, which was displeasing to those who were 
preparing a much more drastic policy directive. Our government 
ordered the suppression of this manual with consequent devastat- 
ing effect on the morale of the U. S. Group Control Council, al- 
though reading it now will show that it deviated little from the 
American policy which was to develop for Germany and to be 
proclaimed first by Sea'etary of State Byrnes in his Stuttgart speech. 
[Italics added.] 

Military government could have carried out the directives ap- 
proved by two presidents and set out in black and white in official 
documents. Instead, it chose the limited objectives of quick economic 
recovery and winning the support of German industrialists, at the 
expense of not carrying out the reforms which were the only im- 
mediate justification for the occupation in the first place. How can 
we require government officials to stick to public policy instead of 
giving way before a solidly organized effort from commercial in- 
terests to prevent such policies from being carried out? Will Ameri- 
can public policy recognize its public aims? Or will it go back to 
serving the interests of a limited group under the aegis of tem- 
porary expedients like saving the taxpayers* money or protecting 
American private interests abroad? 

Though there is still time to try again in the German laboratory, 
it docs not mean that a change of men would necessarily be enough 
to produce a change in result. We have seen how the international 
fraternity works. Long before German industry becomes a military 
menace as such, it will become an instrument in the hands of British 
or American financial groups engaged in the dubious enterprise of 
rebuilding their former balance of power in Europe. We have seen 
the almost limitless ways in which it is possible for them to maintain 


control over the course of events in spite of paper declarations. It 
is not enough to have policy statements on paper. There has to be 
an effectively organized and popularly supported political pressure 
to insist that public policy shall be carried out. This popular political 
organization has to be forceful enough to withstand propaganda 
campaigns and political maneuvers backed by unlimited cash. 

The ecopoliticai masters of Germany boosted Hitler and his pro- 
gram into the driver's seat at a time when the tide in the political 
fight between the Nazis and the supporters of the Weimar Re- 
public was swinging against the Nazis. All of the men who mattered 
in banking and industrial circles could quickly agree on one program 
and throw their financial weight behind it. Their support won the 
election for the Nazis. 

We must assume that the same thing is not yet true in the United 
States. We do have economic power so concentrated that it would 
lie in the power of a group of not more than a hundred men — if 
they could agree among themselves — to throw the same kind of 
combined economic weight behind a single program. They have not 
agreed yet. There are still enough divisions within the Republican 
Party and enough minor differences between Republicans and 
Democrats to indicate that on some fundamental economic questions 
there are different points of view, each one championed by a dif- 
ferent faction inside the financial and industrial community itself. 

If the United States should run into serious economic difficulties, 
however, most of the conditions for a re-enactment of the German 
drama would already exist on the American stage. The slight dif- 
ferences within the camp of the fraternity then may be the only real 
barrier to the kind of integration of the financial and industrial 
community behind a single repressive program, like that which 
the financiers and industrialists of Germany executed through Hitler. 

Arc we safe in assuming that it would take a grave economic 
crisis to precipitate the dangers inherent in economic concentration ? 
The basic integration of the financial and industrial groups in the 
United States is evident when we look at the increase of concentra- 
tion in the past few years. Before the outbreak of World War II, the 
250 largest American industrial corporations controlled two thirds 
of the industrial assets in the United States, and the bulk of this 


collection was m the hands of the 100 largest. The leading firms 

were arranged into eight major groups by common financial ties 
and interlocking directorates. During the war, the government spent 
$175,000,000,000 on prime war contracts. Of this amount, ten 
corporations got the top 30 per cent, and one hundred corporations, 
including those ten, got the top 75 per cent. The government spent 
$26,000,000,000 on new manufacturing plants. Half of the total in 
new plants went to twenty-five corporations and three fourths went 
to one hundred corporations. 

The next step was inevitable. In the postwar demobilization and 
the sale of "war assets," three fourths of all the war plants were dis- 
tributed among the 250 largest firms, and the remaining one fourth 
went to some of the 262,000 small firms which, before the war, had 
accounted for about one third of the total industrial facilities. In the 
five years o£ the war, the 60 largest corporations more than doubled 
their total assets. When the shooting was over the 100 largest cor- 
porations, held by the same eight financial groups, instead of con- 
trolling two thirds controlled three fourths of the American in- 
dustrial economy. 

Just as the six largest financial corporations in Germany inter- 
locked with the dominant industrial firms, so there are eight large 
financial units in the American economy which in recent years have 
assumed a comparable degree of power over here. These are: (i) the 
Morgan group controlling, among many others, such headliners as 
United States Steel, General Electric, Kcnnecott Copper, American 
Telephone and Telegraph, International Telephone and Telegraph; 
(2) the Rockefeller interests, including the Standard Oil companies 
and the Chase National Bank; (3) the Kuhn, Loeb public utilities 
network; (4) the Mellon holdings, including the Aluminum Com- 
pany, Gulf Oil, Koppers, Westinghouse Electric; (5) the Chicago 
group, including International Harvester and the Armour and 
Wilson packing houses; (6) the Du Pont interests, including Gen- 
eral Motors, EJ. du Pont de Nemours, and United States Rubber; 
(7) the Cleveland group, with Republic Steel, Goodyear and others; 
and (8) the Boston group, including United Fruit, Stone and Web- 
ster utilities and First National Bank of Boston. 

Firms in the portfolios of these eight groups make up the Big 


Threes and the Big Fours of practically every basic industry in the 
United States. Through their co-operative control of the largest 
insurance companies and the agreements under which they manage 
all large security issues, these combinations of companies are in a 
position to determine the flow of a large part of the ''investment*' in 
the United States. 

We have been slow to recognize the inherent dangers in cor- 
porate empires because we have had a theory that business does 
not need to be governed. The cartel era of the twenties popularized 
the slogan of "keeping the government out of business.** The war 
and postwar era of the forties went the other way, introducing the 
notion that the government's job is to "create a favorable climate 
for private investment.*' In World War II, for example, the United 
States government spent over a billion dollars in conciliating the 
rulers of Saudi Arabia and Iran, thereby creating a "climate" in 
which the Arabian-American Oil Company and a few others after 
the war have made millions in oil concessions on a very modest cash 
investment. The new era has been one of "co-operation," amounting 
almost to identification, between business and government. 

The economic system of the United States is supposed to have 
been developed according to the principles of private Investment. 
In place of a government planning board determining the number 
of shoes, automobiles and radios to be made each year, it is sup- 
posed that private investors, making their separate guesses at the 
types of production likely to be most profitable, have determined 
the size and character of the different parts of the system. It is a 
favorite theme with editorial writers that the United States has 
secured the most productive industrial scheme in the world under 
these principles of independent private investment. 

Even if the principles of investment can be relied upon, as the 
theory goes, to direct the flow of new capital into areas and activi- 
ties where development will be most profitable, it does not neces- 
sarily follow that these same principles will direct new investments 
into fields where development is most necessary from the stand- 
point of public interest. In the case of war, for example, where the 
objective is not to make the most money, the habitual practices of 
investment experts get in the way. War production, with its de- 


mand for high output, imposes a strain on business organizations 

designed to operate at lower output and high prices. 

The great productive effort of World War II followed a long 
period of negotiations between government and the management 
of industries to break production bottlenecks and allow materials 
to start rolling. These blocks included resistance to conversion of 
plants for war production from their usual peacetime production 
of such items as automobiles, refrigerators and radios. There was 
resistance to expansion of basic industries, symbolized by the stacks 
of aluminum pots in every courthouse square, by the steel shortage, 
and by the delays in the synthetic rubber program. There was re- 
sistance to the licensing of patented processes to "outsiders** and 
there were other patent restrictions, as in Plexiglas for bomber 
noses, quinine substitutes for malaria prevention, and many others. 
There was resistance to subcontracting of prime war-production 
contracts so that the large, medium-sized, and small independent 
firms could unleash their unused productive energies. 

Though the economic system of the United States is supposed to 
have developed according to the principles of private investment, 
it is not true that the over-all "plan'* or pattern of the nation's eco- 
nomic growth has been purely the product of uncoordinated, indi- 
vidual decisions. The necessities of war and other major actions of 
government have given direction and impetus from time to time, 
but the greatest economic forces have been under steady control 
for a long time through the system of concentrated "free enter- 
prise," with its interlocking directorates, holding companies, com- 
bines, intercompany agreements and manufacturers* associations, 
and through the private planning of international bodies like the 
International Steel Cartel. 

There is, probably, no magic formula to determine exactly how 
far our government would have to go in devising new laws to 
enable it to assume control over the nation*s economic course. How- 
ever, the example of Germany does indicate some of the guidelines 
which ought to be watched carefully. At the base of the German 
problem was the unbalanced economic system tightly controlled by 
a clique of financial and industrial operators. What we have seen of 
the pattern followed in Germany indicates three principal ways in 


which the behavior of the banks and the industrial combines threw 
the national economy out of balance. First, the economic system was 
overburdened with heavy or producer-goods industries and deprived 
of light or consumer-goods industries; second, industrial production 
was overemphasized and agriculture was neglected; third, the prod- 
uct of the German factories was overpriced in relation to the na- 
tional income, so that the population as a whole could not buy all 
the goods that the nation*s factories produced. 

These balances between heavy and light industries, between in- 
dustry and agriculture, and between production and consumption, 
were destroyed partly by the failure of the Weimar government to 
act, and pardy by the positive acts of the financial and industrial 
clique. In building an economy dominated by heavy industry with 
high rates of income for the combines, with shortages of food and 
consumer goods for everyone else, they upset the balance not only 
of the German economy, but of the whole European economy as 
welL Germany ran a downward and inexorable course toward 
economic dislocation, violent political measures to fend off the con- 
sequences, and finally war. 

Our job now is to prepare for a future crisis before it happens. 
This means we must have a double objective in Germany. The oc- 
cupation of Germany must be put back on the track. But more than 
that, we have to reassert public goals in the United States which 
will prevent the already apparent concentration of economic power 
in our own country from reaching the end it did in Germany. We 
cannot hope to end the concentration of economic power in Germany 
until we are able to deal with the concentration of economic power 
in the United States* 

This brings the German problem home with an urgency that has 
been missing in the postwar discussions about Germany. The need 
to treat Germany as an American problem was not felt in this 
country after World War 1. Despite warnings from men whose ex- 
perience with the German occupation had convinced them that 
we were entering a period of armed truce, and not peace, business 
arrangements went ahead unchecked to rebuild a Germany that 
could not be expected to be anything but a steam-roller. Now, with 
all that experience and warning behind us, and in spite of strong 


popular support for the reform of Germany, we have had to watch 
the same errors being repeated as if nothing else were possible. 

The moral of this is not that Germany is an inevitable menace, 
but that there are forces in our own country which can make Ger- 
many a menace. And, more importantly, they could create a menace 
of their own here at home> not through a deliberate plot to bring 
about a political catastrophe but as a calm judgment of "business 
necessity." The men who would do this are not Nazis, but busi- 
nessmen; not criminals, but honorable men. 



Aachen Basin, 39 

A.B. Investor, subsidiary of En- 
skilda Bank) 250, 251 

A.B. Svenska Kullagerfabrikcn, 
Swedish bearing monopoly, 137, 
219, 251-254, 268, 269 

Abbink, John, Chairman, National 
Foreign Trade Council, 194 

Abs, Hermann J., Managing Di- 
rector, Deutsche Bank, 71, iii, 
127, 132, 135, 185, 242, 274, 278 

Achilles, Theodore, 165 

Acierics Reunies de Burbach-Eich- 
Duddange, 39, 40-41, 49, 137, 

Adenauer, Chancellor, 241 

A.E.G. See Allgemeine Elektrizi- 
tats Gesellschaft 

Agartz, Victor, 274 

Agfa. See General Aniline & Film 

Agreements, international business, 
scope of, 4-5, 9, 61; wartime in- 
vestigation of, 9-12, 13-14; re- 
striction of production in United 
States, ro, 15 

Air Intelligence, 9 

Aircraft-equipment firms, three* 
way arrangement among, 11 

AKU", Dutch rayon trust, roo, lor, 
131, 132-136, 137, 219, 253 

Albert, Heinrich, 52 

Albert, Werner, 273-274 

Albert & Westrick, 52, 53 

Alcan. See Aluminum Company 
of Canada 

Alcoa. See Aluminum Company 
of America 

Alien Property Custodian, Stand- 
ard Oil suit against, 77-81; seiz- 
ure of Krupp patents, 91; seiz- 
ure of American Hyaisol Cor- 
poration, 116; proposed seizure 
of rayon firms, 132 

Allen, George, 213 

Allgemeine Elektrizitats Gesell- 
schaft, 71, 90, 100, 10 1, 125, 139, 

Allied Control Authority, organ- 
ization, 166-167; problem of de- 
centralization of German econ- 
omy, 168-174, 175-179. See also 
Military Government for Get* 
msny (VS.) 

Allocation, of raw materials in 
postwar Germany, 177, 213-215 

Alsace-Lorraine, 39, See dso Lor- 

Aluminium Werk Bitterfdd, 112 

Aluminum, German domestic pro- 
duction, 112; U.S. tariff reduc- 
tion, 282-283, 285 

Aluminum Company of America. 
283-285, 296 

Aluminum Company of Canada, 

America and a New World Order 

(Howard), 24 ^ 164 
American Bemberg Corporation, 

132, 135-^3^ 
American Bosch Magneto Corpo- 
ration> operations of, 219, 248- 



251. See dso Bosch^ G.m.b.H., 

American Enka Corporation, 132 
American Hyaisol Corporation, 
I I 6-1 17 

American I.G. Chemical Corpora- 
tion, 67-68 

American Potash and Chemical 
Corporation, 212 

American Telephone and Tele- 
graph Company, 127, 296 

Amram, Philip W., 76-77 

Anaconda Copper, 10 

''Antidumping" act of 1921, 66 

Antitrust Division, Department of 
Justice, 9; investigation of Amer- 
ican patent system, 61 

Antitrust laws, enforcement of, 
suspended for duration of vi^ar, 
13; evasion of, in International 
Steel Cartel, 46-47; violations of, 
by Philips, 140 

Antitrust legislation, 172 

Antitrust policy, administration of, 
in Germany, 185. See also De- 
cartelization Branch 

Antitrust suits, international, size 
and scope o£, 4-5; Sterling Prod- 
ucts, Inc., 7-8; Standard Oil- 
I.G. Farben, 69 

Arabian-American Oil Company, 

Arhed. See Acieries Reunies de 

Argentina, ex-Nazis in, 281-282 

Armour, Bernard R,, 212 

Armour & Company, 296 

Arnhem, Holland, 123 

Arnold, Thurman, Assistant At- 
torney General, 4, 5; drive 
against international industrial 
agreements, 7, 12-13 

Art treasures, discovery of, at 
Merkers, 58-59 

Associated Rayon. See AKU 
Athenia, British ship, 251 
Attlee, Clement R., 158 
Auergesellschaft, subsidiary of De- 

gussa, 145 
Auschwitz, concentration camp at, 


Autarchy pian. See Four-Year 

Avery, Johnston, 9, 229, 260, 261, 

262, 279 
Avieny, Wilhelm, 128 

BabingtoN'Smith, Brigadier M. J., 
Chief of Financial Branch, 
SHAEF, 76, 133 

Bad Sachsa, 78, 97 

Baldwin, Charles C, 230, 231, 261 

Baii, Irene Opton, 261 

Bali, Joseph H., 88 

Ball, Theodore H., Deputy Direc- 
tor (later Director) of Finance 
Division, 190, 207-208 

Ballestrem, Count von, 125 

Bank der Deutschen Arbeit, 122 

Bank Deutsche Lander, 190, 242 

Bank for International Settlements, 
121, 280-282 

Bank of America, 126 

Bankers, German, back Hitler, 6, 

Bankhaus J. H. Stein, 50, 51-52, 
54, 1 01, 122. See also Schroder, 
Baron Kurt von 

Banks, German, three dasses of, 
118; centralized commercial and 
investment, 121- 122; private 
partnerships, 122; deposits of 
stock, 126; control of industrial 
economics, 129-130; decentral- 
ization of, 190, 198. See also 
individual banks by name 

Banque de ilndochine, 207 



Barich, Karl, 274 

Barron, John J., 261 

Bary & Company, H. Albert dc, 92 

Batt, William L., 254 

Bayar, Colonel A. C., Soviet con- 
trol officer, 224 

Bayer Company, 15 

Bayrische NIotoren Werkc, 127 

Beaty, Kathryn R», 261 

Bech, Joseph, Foreign Minister of 
Luxembourg, 280 

Bcckhart, Benjamin H., Econo- 
mist, Chase National Bank, 194 

Bedaux, Charles, 251-252 

Bedaux System, 251 

Rehn, Colonel Sosthenes, 209 

Belgium, German vested interests 
in, 18-19 

Bell, Laird, 170, 171 

Bemberg A.G., J, P., 134 

Bendix Corporation, agreement 
with Siemens and Zenith, 11 

Bennett, Jack, Director of Finance 
Division, 190, 206, 207-208; 
Finance Adviser to the Military 
Governor, 222 

Berge, Wendell, 261, 277-278 

Berlin Chamber of Commerce, 125 

Berliner Handelsgesellschaft, 100, 
lOi, III, 122, 124-125 

Bernstein, Colonel Bernard, 59, 
89, 176, 238 

Bessonov, Sergei, 195 

Bethlehem Steel Corporation, 47, 
48, 285 

Bevin, Ernest, 158 

BHG. See Berliner Handelsgesell- 

Biddle, Francis, disagreement with 
Arnold, 7, 12-13; quashes prose- 
cution of Sterling Products, Inc., 
7-8; demands curbs on German 
combines, 13-16, 17; quoted on 
reorganization plans, 255 

Big Bertha, gun of World War I, 

Bizonal Economic Administration, 
267-268, 273 

Bizonia, decartelization law for, 
228, 229; population, 240; Ger- 
man administration in, 241-242. 
Se^ also Military Government for 
Germany (U.S.) 

Blockades, 8 

Board of Economic Warfare, cre- 
ation of, 8~9 

Bofors steel and munitions works, 

Boforsinteressenten, 252 
Bogdan, Captain Norbert A., 25, 

Bohme Fettchemie, G.ra.b-H., 
Henkel subsidiary, 116 

Bombing, strategic, 8 

Bombing Survey, U.S., of Ger- 
many, I 61-162, 179 

Bonn, Germany, 50, 55 

Bordereaux, reinsurance informa- 
tion sheets, 20-21 

Borkin, Joseph, 21, 23 

Borsig combine, 43 

Bosch, Carl, Chairman of I.G. Far- 
ben, 30, 64, III 

Bosch, Robert, 44 

Bosch, G.m.b.H., Robert, 90, 125, 
214, 246, 247-251, 256, 260-261, 

Bosch-Swiss agreement, 271-272 
Boston group, financial unit, 296 
Bottlenecks, search for, in German 

production, 9-10 
Bourke-White, Margaret, 106 
Boyd, Colonel James, head of In- 
dustry Branch, Economics Divi- 
sion, 192 
Bradley, General Omar N., 26 
Brandstatter, Krupp director, 93 

3o6 IN 

Braunkohle-Bcnzin synthetic fuel 

company, 71 
Bretton Woods Conference, 280- 

Brewster, Owen, 88 

Briesen, Hans von, 93 

Briey Basin, Lorraine ore field, 34, 


British Iron and Steel Federation, 

48. 49 ^ . . 

British Isles, See Great Britain 
Bronson, Colonel Kic)x2Lrdson, 230, 

255, 256-260, 269, 272, 276, 277 
Brown, Lewis H., 265; Report on 

Germany, 243-244 
Brown Brothers, Harriman fic 

Company, 265 
Briining, Chancellor Heinrich, 5- 

7, 102, 107, 274^275 
Bulge, Battle of the, 38 
Burckhardt, Otto, 128 
Burckmeycr, Hans, 125 
Bureau of Mines, United States, 


Burgess, Randolph, Vice Chair- 
man, National City Bank of 
New York, 194 

Buro Keppler, 72 

Bursler, Norman, 24, 54, 60 

Buscmann, Alfred, 93 

Bushy Park, 24, 53, 155, 164 

Business, government and, 264- 
266, 268-269, J 282, 288, 289- 
290, 2g^-^oo 

Biitefisch, Dr., chief of LG. Far- 
ben synthetic oil production, 77 

Byrnes, James F,, Secretary of 
State, 293, 294 

Canning, John H., 238 

Capital goods, exemption from re- 
organization program, 256-257 

Carp, Werner, head of Haniel 
dan, 100, 105 


Cartels, i^op\ji2it indiiference to, 4; 
operation of, in Germany, 15- 
16, 85; Division of Investiga- 
tion of Cartels and External As- 
sets, 153, 170. See also Agree- 
ments, international business; 
Decartelization Branch; Decen- 
tralization; Industry 

Cartels Division, 163, 176, 191. 
See also Decartelization Branch 

Centers of investigation, 76 

Chambers, S. P,, 76 

Chambrun, General Count Adal- 
bert de, 207 

Chambrun, Count Rene de, 207 

Charlotte, Grand Duchess of Lux- 
embourg, 38, 40 

Chase National Bank, 127, 194, 

Chemical Foundation, 91 

Chemical industry, synthetic, Ger- 
man development of, 62-63; 
German global plans, 68-70; go- 
betweens, 1 1 6-1 17. See dso I.G. 
Farbenindustrie A.G. 

Chemische Fabrik von Heyden 
A.G., 212 

Chicago group, financial unit, 

Chicago Pneumatic Tool Com- 
pany, 219 

Chicago Sun, 230 

Chinaware, instance of, 217 

Churchill, Winston, 158 

Cigarettes, PX, 230 

Civil Affairs Division, U-S. Army, 

Civil Service, in German military 
government organization, 163 

Clark, Deifaert, 230, 257 

Clark, Tom, 275; discussion of de- 
cartelization program, 232-233 

Clausewitz, Karl von, quoted on 
war, 235 



Clay, Generai Lucius U.S, Mil- 
itary Governor in Germany, 166, 
167, 168, 170, 191, 193, 221, 244, 
292; position on decartelization 
and denazification of Germany, 
186, 197-200, 201-204, 227, 228, 
246; German penicillin prob- 
lem, 210-212; position on dispo- 
sition of German dollar credits, 
214, 215; quoted on pressure 
from U.S. firms with German 
interests, 218-219; position on 
Meader report, 225-226; and de- 
feat of occupation, 235-240 pas- 
sim; on dhmantling program^ 
239; on failure of food program, 
241; approves new policy of 
German industrial reorganiza- 
tion, 258-262, 268, 269, 276; or- 
der re members of occupation 
forces on private business, 271; 
retirement, 276-277; on U.S. 
policy in Germany, 293- 

Clayton, William L., Assistant Sec- 
retary of State for Economic Af- 
fairs, 199, 282; position on de- 
cartelization law, 227 

Cleveland group, financial unit, 

Coal, in Ruhr area, 29; German, 
after World War I, 29-32, 34; 
Haniel interests, X04, 105-106; 
Reich Coal Association, 132; 
production of, under Potsdam 
Agreement, 160-161; allocation 
of, in postwar Germany > 177, 
179, 182-184; reorganization of 
industry, 272-273 

Coai Syndicate. See Rhenish-West- 
phalian Coal Syndicate 

Cole, Colonel, 78 

Coleman, Creighton R., 191, 192, 

Collaborationists, role of, 136-137 
CoUison, Charles H., 277 
Cologne, Germany, 50, 55, 75 
Combined Travel Board, 205-206 
Combines, in German industry, 

128; decentralization of, blocked 

by England, 154-155, See dso 

Industry, German 
Comite des Forges, French wing 

of International Steel Cartel, 34, 


Commerce and Industry Group, 

Commercial Solvents Corporation, 
agreements with Degussa, 115 

Commerz und Privat Bank, 52, 
122, 124, 125; loans to, 71; con- 
nections with JJnite:d. Steel, 100, 
1 01; reorganization of, 190 

Commodity Credit Corporation, 

Commonwealth and Southern, 127 
Competition, German notions of, 

Congressiond Record, 262 

Conrot, Eric, 39, 40 

Consumer goods, problem of, in 
Germany, 122-123 

Contractual tics, proposed elimina- 
tion of, in Germany, 196-197 

Control Council Law No. 9, dis- 
solution of LG. Farben combine, 

Controls, relaxation of, m occu- 
pied Germany, 215-220 

Corcoran, Thomas G., attorney for 
Sterling Products, Inc., 7 

Corn Products Refining Company, 

Corporations, German, 1933^1942, 

Cotton, postwar shipments of, to 

Germany, 2r6 
Courtaulds, Ltd., 135 



Credits, dollar^ to Germany, 214- 


Criminal Code, quoted, 270 
Crisswali, Colonel, Military Gov- 
ernor of Frankfurtj 74 
Curasao, N.W.L, Philips offices at, 

Currency, reform of German, 225 
Cyanides, I3f4-ii5 
Czechoslovakia, German occupa- 
tion of, 171-172 

Daimler-Benz, 10 i, 127 

Dawes Plan, 33, 53, 280 

DEAG. See Deutsche Erdoel A.G. 

Decartelization Branch, replaces 
Cartels Division, 163, 176, 177, 
178; recruitment for, 191-193; 
opposition to, 195-194, 197- 

199, 20c^204; problem of decar- 
telization lav;^, 194-196, 197- 

200, 227-230; suggested pro- 
gram of President's Executive 
Committee on Economic For- 
eign Policy, 196-197; General 
Clay quoted on, 201-202; 
Meader report, 221-222, 225- 
226; Reed report, 222-223, 226- 
227; standstill agreement with 
Economics Division, 226; Mili- 
tary Government Law No, 56, 
228, 229, 231, 232, 245-246, 
247, 256-257> 258, 273; Hoover 
report, 228-229, 232; Report on 
German Cartels and Combines, 
230, 231; report of business ex- 
ecutives, 232, 233; U.S, policy 
reaffirmed, 233-234; Brown re- 
port, 243^.244; new policy of, 
245-246, 2SS'26z, 276, 278; 
memoranda to General Clay, 
257-258, 259, 262; report of 
Ferguson Commission, 275-278 

Decentralization of German econ- 

omy, problem of, 154-162, 168- 

174, 175-179, 194; negotiations 
of State Department and British 
Foreign OHce, 165. See also De- 
cartelization Branch 
Degussa. See Deutsche Gold und 

Siiber Scheideanstalt 
Deist, Heinrich, 274 
Delaware corporations, 137 
Delbriick, Schickler & Company, 

DEMAG machinery combine, 10 1, 

Denazification, 229; General Clay 
quoted on, 201-202 

Dencker, Paul, chief accountant o£ 
LG. Farben, 64, 66 

Department of Justice, 9 

DEST. See Deutsche Erd und 
Steinwerke, G.m.b.H. 

Deutsche Bank, 52, rii, 122; loans 
to, 71; control of Manncsmann 
Rohrenwerke A.G., 94-95, 97; 
connections with United Steel, 
TOO, 1 01; Operations of, 126- 
128, 129, 135, 292; reorganiza- 
tion of, 190 

Deutsche BergwerJ(s-Zeitung, cited 
on Poensgen's birthday celebra- 
tion, 44 

Deutsche Erd und Steinwerke, 
G.m,b.H,, suppliers of slave la- 
bor, 87, 120 

Deutsche Erdoel A,G., 95, 10 1 

Deutsche Front, 35 

Deutsche Gold und Siiber Schei- 
deanstalt, precious metals com- 
bine, 90, 1 1 3-1 1 5, 125, 145 

Deutsche Hydricrwerkc A.G,, 
Henkd subsidiary, 116 

Deutsche Kredit-Sicherung KG., 

Deutsche Landerbank, 122 
Development of German Natural 


and Synthetic Raw Materials, 
Special Agency for the, 72 

Devereux, Frederick L., 164, 192, 
243, 265 

Dierig A.G., Christian, 125, 126 

Dieudonne, Hector, Secretary of 
International Steel Cartel, 39 

Dilley, Charles A., 261 

Dillon, Clarence, 41, 207 

Dillon, Read & Company, 13, 24- 
25, 41-42, 53, 127, 206, 207, 265 

Dinkelbach, Heinrich, Chairman, 
United Steel, 90, 94, 102-103, 
III, 185, 241, 274 

Dismantling program. See Repa- 

Division of Investigation of Car- 
tels and External Assets, War 
V>t'^2irVrs\c,Tit^ 153, 170 

DoUar-a-year men, investigation of, 


Draper, Brigadier General Wil- 
liam H., Jr., association with 
Dillon, Read & Company, 41, 
206, 276; head of Economics 
Division, 90, 91, 163, 176, 177, 
186-187, 191, 193, 194, 198-199, 
203, 222-223, 225, 227, 277 

Dresdner Bank, 121, 122, 292; 
connections with United Steel, 
100, Toi; operations of, 113, ti6, 
126, 127-128, 129; relations with 
Henkel, Degussa, and Metall- 
gesellschaft, 117; loan to DEST, 
120; reorganization of, 190 

Duco A. G., 125 

Duisberg, Cari, 44 

Dulles, Allen W., 67-68, 106 

Dulles, John Foster, 53, 250 

DxLtiCs^n^ Sir Andrew, 49 

Dupong, Pierre, Prime Minister of 
Lu5cembourg, 280 

Du Pont de Nemours and Com- 
pany, E. I., 55, 58, 116, 137, 279, 

296; agreement with Rohm & 
Haas, lo-ii; cyanide produc- 
tion, 115; patent-exchange agree- 
ments with Degussa, 115 

Diisseldorf , headquarters of United 
Steel Works, 85; Allied occupa- 
tion of, 86 

Diisseldorf Agreement (1939)9 5, 

18, 159, 171-172, 174 

Dutch National Committee for 
Economic Collaboration, 136 

Dyestufis and chemical trust, Ger- 
man. See I.G. Farben Industrie 


Economic Co-operation Adminis- 
tration, investigation of disman- 
tling program, 239; failure of 
food program, 239-241 

Economic Directorate, Allied, in 
Germany, 170 

Economic Foreign Policy, Presi- 
dent's Executive Committee on, 
decartelization program, 196- 

Economic Warfare, nature of, 8-9; 
German, in action, 13-14; Ger- 
man bridgeheads for, 81 

Economic Warfare, British Minis- 
try of, 22 

Economic Warfare Section, De- 
partment of Justice, creation of, 
9; investigation of concentration 
of German economic power, 17- 

19, 90; report on German occu- 
pation after World War I, 28; 
aids and hindrances to, in Ger- 
many, 74-79; investigators* 
headquarters in Ruhr, 82-83; 
additional field staff requested, 

Economics Division, 165, 173, 174, 
184, 208; dissention in, 175-178, 



191; recruitment for, 191-193; 
obstruction of Decartciization 
Branch, 193-194, 197-198, 200- 
204, 225, 234, 236, 237, 269; 
briefings of visiting U.S. dele- 
gations, 200-201; position of, on 
stimulation of German produc- 
tion, 213-215; laxity of, in Ger- 
man reconstruction, 215-220; 
fear of publicity, 230 

Ecopolitical organizations, in Nazi 
effort, 291-292 

Eden, Anthony, 158 

Editors, visit of, to Germany, 200- 

Edward VIII, King of England, 

Edwards, Corwin D., 143 
Eindhoven, Holland, 22 
Eisenhower, General Dwight D,, 

17, 25, 27, 39, 59, 88, 168 
Eisier, Rudolf, 125 
Electric lamps, control of world 

trade in, 145-149; economic life 

of, 147-148 
Elliott, Ian F. L., 49, 275 
Engel, Fricdrich Wilhclm, 274 
England, See Great Britain 
England, William H., 275 
Enka, Dutch rayon firm, 134 
Enquete Ausschuss, 43 
EnskiMa Bank, Stockholm, 137, 

250, 251 

Entente Internationale dc I'Acier, 
See International Steel Cartel 

Equipment, wartime, disposition 
of, 187-188 

Eschweiler, Germany, 39 

Espionage Act, 21 

European Recovery Program, 242 

Exchange. See Foreign exchange 

Export-Import Bank, 115 

Export-Import program, problem 
of, for Germany, 218 

Exports, resistance to German, in 
United States, 218 

Fahy, Charles, 21, 23, 170, 275 

Fairless, Benj^imin F., 48 

Federal Bureau of Investigation, 

22, 23-24 
Federal Homt Loan Bank system, 


Federalist Papers, quoted on gov- 
ernment, 290 

Federation of British Industries, 

96; Diisseldorf Agreement, 5, 18, 

159, 171-172, 174 
Feine, Otto, head bookkeeper of 

German Steel Association, 99 
Fcldmiihle paper works, 125 
Fcltcn & Guillcaume Carlswerk, 

39> 49 

Ferguson, Garland S,, 275 
Ferguson, Homer, 88 
Ferguson Commission, 275-278 
Finance Division, 163, 208; decen- 
tralization of German banks, 
190, 198; German currency re- 
form, 225 
Financial Branch, SHAEF, 17 
Financiers, proposed list of, 75 
First National Bank of Boston, 

Fischer A.G., bearing works, 254, 
260, 269 

Fisher, Commander Joel, 121 

Flags, display of foreign, in Ger- 
many, 97-98 

Flick, Friedrich, 87, 90, 101-102, 
128, 241 

Flick steel complex, yi^Si^Sy^ 100, 
101, 125, 214, 273 

Flotow, Hans von, 100 

Focke-Wulf military aircraft com- 
pany, 209 

Food progranni, investigation of, by 



Hoover mission, 228; failure o£, 
in Germany, 238, 239-241 
Ford Motor Company, German 
works, 75; French subsidiaries, 

Foreign exchange, Nazi control of. 

Foreign Funds Control Division, 
Treasury Department, investiga- 
tion of concentration of German 
economic power, 17-19 

Foreign Property Holders' Protec- 
tive Association, 208 

Forney, Coionel, 153 

Forrestal, James V., 13, 41, 265 

Four- Year Plan, German rearma- 
ment, 71, 72, 107, III, 123, 216 

France, economic collaboration 
with Third Reich, 18; German 
vested interests in, 18-19; iron 
and steel production, 31, 46; con- 
flict of public policy and private 
activities, 34, 36; fall of, 1940, 
36; position on decentralization 
of German industry, 171; posi- 
tion of, on Ruhr, 180, 184; 
negotiations for decartciization 
law, 195, 196, 198, 199, 227 

Franck, Coionel J. J., French con- 
trol ofSccr, 211 

Franco, Francisco, 124 

Frank-Fable, Dr., diary of, 60-61 

Frankfurt am Main, 55, 57-58, 76 

Frani{jurter Zeitung, quoted on 
VKF, 253 

Frazer, Colonel Frank E., 37 

Friedrich, Hermann, Swedish con- 
sul general in Diisscldorf, 98 

Fritts, Frank, 208 

Funk, Walther, Nazi Economic 
Minister, 44, 118 

Gage, Leslie, 93 
Gasoline, synthetic, 9, 10 

Gay lord, Robert, Chairman of 
Executive Committee, National 
Association of Manufacturers, 

Gebriidcr Stumm, G.m,b.H.;, 100 
Gendorf, poison-gas plant at, 187 
General Aniline & Film Corpora- 
tion, 67-68 
General Electric Company, 10, 127, 
296; foreign affiliations, 139, 140, 
146, 147, 194, 218; government 
case SLgainsty 269 
General Motors Corporation, 10, 

III, 218, 219, 296 
Geneva Steel Company, 286 
Geopolitics, in Nazi effort, 291-292 
German Credit and Investment 
Corporation (Deutsche Kredit- 
Sicherung, K.G.), 206 
German Credit and Investment 
Corporation of New Jersey, 206 
German State Railway, loi, 260 
German Steei Association, 99 
Germany, wartime study of indus- 
try in, 9-12, 13-14; investiga- 
tion of concentration of eco- 
nomic power, 15-19; occupation 
policy, 28; co-ordination of 
national and private interests, 
34» 36-37. 291-295, 298-299; 
recapture of industrial and mar- 
ket control akcr World War I, 
41-43; I.G. Farben and world 
power of, 70; Four-Year Plan, 
71, 72, 107, III, 123, 216; 
threatened bankruptcy, 117; 
Nazi war economy, 118-121, 
122-T23, 128-130; postwar pol- 
icy for, 155-158; effect of Allied 
bombing, 1 61-1 62, 179; problem 
of international control, 1 81-182, 
187; reports of American visi- 
tors, 184-185; conversion of 
light-industry economy, 191; re- 



taxation of restrictions on travel 
into, 208-210; currency reform, 
225; defeat of American reform 
policies, 235-244, 275-278, 279, 
282; Dr. Schacht's plan for post- 
war recovery, 242-243; preferred 
status of "foreign'* companies, 
267; United States and problem 
of, 299-300. See also Nazi Party 

GestapOj 54 

Ghercsos brothers, 271 

Girdler, Tom, 48 

Glanzstofi-Courtaulds, G.m.b.H., 

Glaser, Bernard, 54 

Glyn, Mills & Company, 76 

Gobbers, Emil, chief accountant of 

Mannesmann, 96-97 
Goetz, Carl, Chairman, Dresdner 

Bank, 71, 100, 113, 128 
Gold, recovery of German, 58-59, 
73; shipment of, from United 
States to Germany, 115; trans- 
actions with Bank for Interna- 
tional Settlements, 281 
Golddiskontbank, subsidiary of 

Rcichsbank, 120 
Goldschmidt, Theo, 125 
Goldschmidt A.G,, Th., 125 
Good Hope steel complex, 45, 100, 
261, 273; loans to, 42-43, 71; 
operations of, 104, 105-106, 246 
Goodyear Tire & Rubber Com- 
pany, Incorporated, 296 
Gordon, Colonel, 59, 60, 109 
Goring, Herbert L. W., 125 
Goring combine, Hermann, 72, 
lor, 273 

Government, national and private 
interests in, 264-266, 268-269, 
279, 282, 288, 289-290, 295-300 

Grace, Eugene G., 48 

Grassett, General A. E,, British 
head of SHAEF G-5, 88 

Great Britain, Dtisseldorf Agree- 
ment, 5, 18, 159, 171-172, 174; 
Ministry of Economic Warfare, 
22; seizure of Ruhr industries, 
153, 154; Labor Party, 154, 158; 
blocks reorganization of Ger- 
man combines, 154-155; nego- 
tiations with State Department 
on decartelization law, 165; po- 
sition on decentralization of 
German economy, 169-174; po- 
sition on Ruhr, 180, 184; position 
on international control of Ger- 
many, 181, 184; negotiations for 
decartelization law, 195, 198, 
199, 227-228; reorganization of 
German banks, 198. See dso 

Great Gustav, gun of World War 

n, 83-84 

Gulf Oil Company, 296 
Gutehoflnungshiitte Niirnberg 

A.G. See Good Hope steel 


HabER-BoSCH synthetic NmiATE 

Hadir, Luxembourg steel com- 
pany, 40 
Hague, The, 133 

Hague Memorandum, I.G. Farben- 
Standard Oil agreement, 78-79, 

Hahn, Dr., 77 

Hamberg, Harald, head of Swe- 
dish SKF, 268 
Haniel, Alfred, 105-106 
Haniel, Franz, 106 
Haniel, Karl, 105 

Haniel & Cie,, G.m.b.H,, Franz, 
xoi, 105 

Haniel family, 99, 100, 104, 105- 
106. See dso Good Hope steel 



Hansa mine, 94 
Hardy & Company, 122 
Harriman, W. Averell, Secretary 

of Commerce, 218, 222, 265 
Hartford Bank and Trust Com- 
pany, 141 
Harz Mountains, 78, 94, 97 
Haspe, armor-plate mill at, 188 
Hasslacher, Johannes Jakob, 100, 

Haushofer, Professor, 291 

Hawkins, Phillips, second chief of 
Decartelization Branch, 229, 234, 
255, 258, 259, 260, 262, 272; 
quoted on Henschel combine, 
256; report of Ferguson Com- 
mission on, 276; resignation, 

Hays, General George P., 262- 

263, 270, 271 

Hene, Professor, 115 

Henkel & Cie., soap and deter- 
gents combine, 100, iii, 113, 

Henle, Giinther, 274 

Henschel und Sohn, 43, 124; pro- 
posed reorganization of, 246, 
247; investigation of, 255, 256, 

Henschel Flugmotorenbau, 

G.m.b.H., 124 
Hesse-Nassau, royal house of, 109- 


Hessische Bank, 190. See dso 

Deutsche Bank 
Hester, Brigadier General Hugh 

B., 238 

Heyden Chemical Corporation, 

Hilldring, General John H., 153- 

Himmler, Hemnch, 50, 51, 54, 71, 


Himmler Fund, 87, 90, 120, 133, 

158, 204, 209. See dso "S*' ac- 

Hindenburg, Paul von, 6 

Hitler, Adolf, 72, 100, 118, 136, 
229, 295; co-operation of Ger- 
man bankers and industrialists 
with, 6, 18, 83-85, 121; relations 
v/ith Krupps, 83-85; quoted, 108 

Hitler Youth, 78 

Hochst, I.G. Farben plant at, 189 

Hoesch A.G., coal combine, 110, 
125, 273 ^ 

Hoesch family, 125 

Hoffman, Paul G., 275 

Holland. See Netherlands 

Holzmann A.G., Philip, 127 

Honigman, Alfred, 100. 

Hoover, Calvin B., report on res- 
toration of Germany, 183 

Hoover, Herbert, report on Ger- 
many, 228-229, 

Houdremont, Edouard, 90 

Howard, Colonel Graeme K., 24, 
25, 164 

Howard, Frank A., 77, 78-79, 80- 

Huber, Willi, 100 

Hugenberg, Alfred, 100 

Hull, Cordell, 14, 155 

Humphrey, Don, quoted on dis- 
position of German coal, 182- 
183; on Potsdam Agreement, 183 

Hynd, Honorable John, 165 

LG. Farbenindustrie A,G., 57, 71, 
75, 84, 100, 110, 113, 122, 127, 
128, 292; formation of, 4, 42, 43, 
65; Bruning*s relations with, 6; 
agreement with Sterling Prod- 
ucts, Inc., 7-8, 15; agreement 
with Rohm & Haas, lo-ii; op- 
erations of, 14-15, 129, 130, 131; 
organization, 30; recovery of 
records, 57-61, 74, 77; poison- 


gas production, 59-60, 81; New 
Order plans, 61, 68-70; patent 
problems, 62-63, ^^3~^M9 i^^ter- 
views with management, 64; 
concealment of foreign opera- 
tions, 64-68; arrangement with 
Standard Oil of New Jersey, 77- 
81; connections with United 
Steel, Toi; assets and employees, 
104; disposition of properties, 
178; Leuna works, 181; reorgan- 
ization of, 186-187, 188-190, 
230; postwar penicillin produc- 
tion, 211-212; problem of trade- 
marks, 215-216 
I.G. Farben Control Office, 163, 186 
ligner. Max, financial chief of I.G. 

Farben, 64, 77, 241 
Ilseder, steel combine, 273 
Imperial Chemical Industries, Ltd., 
55. 58, 

Imports, U.S. resistance to, from 
Germany, 218 

Industrial Products Trading Cor- 
poration, Zurich, 271-272 

Industrial Revolution, Luxem- 
bourg, 38 

Industrialists, meeting of British 
and German, at Diisscldorf, 5, 
18, 159, 171-172, 174; co-opera- 
tion with Hider, 6, 18, 83-85, 
121; private agreements of 
American, British, and German, 
7; machinations of German, 
after World War I, 33-34; 
Franco-German collaboration in 
interwar period, 34; proposed 
listing of German, 75; Rhine- 
land, 106-108 

Industry, wartime study of Amer- 
ican and foreign, 9-12, 13-*! 4; 
German control of international, 
41-43, 144-145 

Industry, German, control of, 18, 

128-130; subsidization of, 66; 
capital goods, 106-108; decen- 
tralization of, 1 54-- 1 62, 194; 
effects of Allied bombing, 161- 
162, 179; division of, in Allied 
zones, 162; disposal of surplus 
plants, 176-177, 179; Level of 
Industry Agreement, i8o, 182- 
184, 191. See also Decarteliza- 
tion Branch 

Industry Branch, 177, 187, 192, 
2x3, 2x4, 219; reorganization of 
I.G. Farben, 178, 189, 211; pro- 
posal for disposition of Roges 
stock, 217-218 

Inflation, post-World War I, in 
Germany, 30 

Inland Steel, 275 

Insurance, spread of risk, 19-20; 
as source of wartime informa- 
tion, 20-24 

Intelligence reports, 143 

Inter-Allied Commission Super- 
vising German Disarmament, 14 

International Bank for Recon- 
struction and Development, 280 

International Business Machines 
Corporation, 207 

International Chamber of Com- 
merce, 1 01, 136, 193 

International General Electric, 146. 
See also General Electric Com- 

International Harvester Company, 
219, 296 

International Monetary Confer- 
ence, Bretton Woods, 280-281 

International Monetary Fund, 280 

International Sodium Cyanide Car- 
tel, I I 4-1 15 

International Steel Cartel, estab- 
lishment of, 33, 40, 42, 44; 
Comite des Forges, 34, 35; ex- 
amination of files, 37, 39-40, 41, 


46-47; membership, 44, 46, 48; 
terms, 44-45, 47-48; German 
control of, 45-46, 49; United 
States participation, 46-49; meet- 
ing of Joint Co-ordinating Com- 
mittee, 1938, 48-49; dissolution 
of, defeated, 279-280. See also 
Iron and steel industry 

International Telephone and Tele- 
graph Corporation, 10, 127, 209- 
210, 214, 296 

International Trade Organization, 
282, 285 

Internationale Rohstahlgemein- 
schaft. See International Steel 


Investigation of Cartels and Ex- 
ternal Assets, Division of, 153, 

Investigations, Meader report, 221- 

222, 225-226; Reed report, 222- 

223, 226-227; Hoover report, 
228-229, ^3^> business execu- 
tives, 232; Brown report, 243- 
244; Ferguson Commission, 

Iran, 297 

Iron and steel industry, in Ruhr- 
Lorraine area, 28-31, 34; Franco- 
German collaboration in, 34, 36; 
Luxembourg, 38-40; German 
production, 43; organization of, 
in Germany after World War I, 
43-44; investigation of, in Ruhr, 
85-88, 91-108; British depend- 
ence on Ruhr, 180; production 
in postwar Germany, 184; pro- 
posed reorganization of, 261, 
272-275; postwar developments 
in, 285-288. See also Interna- 
tional Steel Cartel 

Isseks, Samuel S., 275 

Italy, German vested interests in, 


ITO. See International Trade Or- 

JCS 1067, directive on future of 
Germany, 157-158, 162, 233-234 
Johnson, Edd, 230 

Kaiser, Henry 2 S3, 28^-288 

Kaiser Wiihelm Museum, 58 

Kali-Chemie A.G., loi, 125 

Kearney, Andrew T., 275 

Kehrl, Hans, Chairman of Phrix 
Works, 71, 72, 131, 132, 216 

Kellam, Colonel John R., 76, 77, 93 

Kellermann, Hermann, General 
Manager of Haniel interests, 

Kennecott Copper, 296 

Keppler, Wiihelm, Hitler's eco- 
nomic adviser, 54, 72, 124 

Keppler Circle, 72, 87 

Kern, Gordon, 209-210 

Kern, Martin E., 248-249 

Kiehi, Johannes, 100, 127, 135 

Kilgore, Harley M., 88, 187, 200, 
221; quoted on postwar German 
industry, 163-164 

Kilgore Committee. See War In- 
vestigating Committee 

Kimmich, Karl, 100 

Kindiebcrger, Charles P., 213 

Kirby, Richard, 242 

Kirdorf, Emil, 44 

Klockner, Florian, 30 

Klockncr steel combine, 100, lor, 
125, 273 

Knepper, Gustav, 100 

Knieriem, August von, chief legal 
counsel of I.G. Farben, 64, 77, 79 

Kobre, Samuel L., 261 

Kocke, Gustav, 97-98 

Koerner, Paul, 72 

Konsbruck, Guill, Economic Min- 
ister of Luxembourg, 280 

3i6 IN] 

Kontinentale Ocl A.G., 124 

Koppers, 296 

Krauch, Karl, 64 

Kreuter, Alexander, 205-208 

Kronberg, Germany, 73 

Kronberg Castle, 109 

Krupp, Bertha, 85 

Krupp A.G., Friedrich, 85 

Krupp von Bohicn und Halbach, 
Alfried, sponsorship of Nazis, 
83, 84-85 

Krupp von Bohlen und Halbach, 
Gustav, 30, 44, 71; sponsorship 
of Nazis, 84-85; quoted on 
Fiihrer, 91 

Krupp Works, 8x, loi, no, 252, 
273; loans to, 42-43, 71; records 
of, 78, 93, 94; symbol of German 
militarism, 82, 83-85; relation of, 
to Nazi state, 83-85; foreign 
operations, 91-93 

Krupfv-Nirosta Corporation, 91-93 

Kuhn, Loeb interests^ 296 

Kunstseide Ring, synthetic textile 
factories, 71, 131, 135 

Labor Fron% enterprises of, 122- 

Labor Front Bank (Bank der 
Deutschen Arbeit) ^ 122 

Labor Party, British, 154, 158 

Labor unions, German, Allied at- 
titudes toward, 180 

Lada-Mocarski, V., 68 

Latin America, LG. Farbcn in, 8; 
German insurance companies in, 
22; purchase of trade -mark 
rights, 215 

Laurent, Captain Francis W,, 230, 
260, 261, 262 

Laux, Colonel, 153 

Law No. 9, Control Council, disso- 
lution of LG. Fatben combine, 


Law No. 56, decartcHzation, 228, 
229, 231, 232, 246, 247, 256-257, 

258, 273 

Law No. 75, reorganization of 
German coal and iron and steel 
industries, 272-273 

Laws. See Antitrust laws; Licens- 
ing laws 

Lawsuits. See Antitrust suits 

Legal Directorate, 170 

Legal Division, 170, 171 

Lemaigrc-Dubreuil, Jacques, 251, 

Leuna works, LG, Farben, x8t 
Level of Industry Agreement, 180, 

182-184, ^9^ 
Lever Brothers, 116 
Leverkusen, LG. Farben plant at, 


Levi, Edward H., 8 

Licensing law^s, delayed repeal of, 
in Germany, 219-220 

Lichtenstein, role of, as go-be- 
tween, 137 

Liddiard Sergeant Ed, 97 

Lindemann, Carl, 128 

Lloyd's group, insurance compa- 
nies, 20, 23 

Loans, to Germany after World 
War I, 30-31, 33, 42-43, 53, 70- 
72. See also Dillon, Read & 
Company; Reconstruction Fi- 
nance Corporation 

Locomotives, production of, in 
Germany, 43 

Loot, recovery of Nazi, 58-59, 73; 
SS, 121; collection of, in Ger- 
man-occupied countries, 123 

Lorenz A.G., C, 209 

Lorraine, 28; steel indusUy, 29-30; 
Briey Basin, 34, 35 

Louis, Dr. Martin, 93 

Lovett, Robert A., 265 

Luer, Carl, in, 113 


Luneburger Heidc, firing range 
in, 87 

Luxembourg, Grand Duchy of, 
study of records, 37; resources, 
38; steel industry, 38-40; role of, 
as go-between, 137; position on 
dissolution of International Steel 
Carte], 280 

Lytdeton, Sir Oliver, British Min- 
ister of Production, no 

McCloy, John J., United States 
High Commissioner for Ger- 
many, 277, 278 

McKim, Ed, 89 

McKittrick, Thomas H., Presi- 
dent, Bank for International 
Settlements, 280, 281 

MacQuaide, Desmond, 133 

McSherry, General Frank J., 
Deputy head of SHAEF G-5, 
88, 89; Director of Manpower 
Division, Berlin, 162, 163 

Maginot Line, 35 

Magnesium, German- American 
prod action agreement, 12 

Maiony, General Harry L, 75 

Maltzan, Baron Freiherr Edouard 
Otto von, 241 

Management, corporate, 289 

Manes, Rene, 54, 55, 96 

Mannesmann, Max, 95 

Mannesmann, Reinhardt, 95 

Mannesmann Rohrcnwerke A.G., 
pipe and tube combine, 42-43, 
81, loi, 127, 130, 273; search for 
records, 78, 87, 94, 96, 98; oper- 
ations and growth, 94-99 

Mansfeld A.G., 125 

Marino, Virginia, 259 

Maritime Commission, opposes 
curbing insurance practices, 22 

Markets, recapture of control of, 

EX 317 

by Germany, 42; division of, 
after World War I, 264 

Marshall Plan, 183, 184 

Martin, Peter V., Deputy Director, 
Economics Division, 200 

Marx, Paul, 100, 125 

Match monopoly, 257 

Matthicnson, Ernst, quoted on dis- 
mantling program, 239 

Meader, George, report on U.S. 
Military Government in Ger- 
many, 221-222, 225-226 

Mellon interests, 296 

Mendelssohn Bank, 249 

Merck, E., Darmstadt, 213 

Merck & Company, penicillin pro- 
duction, 213, 233 

Merck, Fink & Company, Hitler^s 
personal bankers, 100, 122 

Merkers, Germany, 59 

Merkers mine, 121 

Metal industry, go-betweens in, 
116-117, ^^^^ Iron and steel 

Metallgesellschaft A.G., 90, 122, 
T25; discovery of records, 73-74, 
109; operations of, iio-iii, 112- 
113; directorate, in; war prep- 
arations, 112; stockholders, 113 

Metals Reserve Corporation, ad- 
vance to Alcan, 284 

Mey, Karl, 141 

Meyer, Aloyse, Chairman of Inter- 
national Steel Cartel, 40-41, 49, 


Meyer, Emil, 128 
Meyer, Heinrich, 274 
Midland Bank, London, 141 
Military Affairs, Senate Commit- 
tee on, 88 
Military Government for Germany 
(U.S.), headquarters, 166; ad- 
herence to old lines, 167-168; 
problem of decentralization of 



Gcxman economy, 168-174, 175- 
179; dissension in Economics 
Division, 175-178; rumored in- 
vestigation of, 200, 201; reiaxa- 
tion of policies and controls, 215- 
220; Meader report, 221-222, 

225- 226; Reed report, 222-223, 

226- 227; Hoover report, 228- 
229, 232; report of business ex- 
ecutives, 232, 233; Brown report, 
243-244; Ferguson Commission, 
275-278; laboratory for study of 
government in business, 291-295 

Military Government Laws, No, 
56, decartelization law for Bizo- 
nia, 228, 229, 231, 232, 246, 247, 
256-257, 258, 273; No, 75, reor- 
ganization of German coal and 
iron and steel industries, 272- 

Mills, Sir Percy, Director of Eco- 
nomic Affairs, British Control 
Commission, 90-91, 96, 154-155, 
165, 169-*! 75 passim, 180, 224 

Minette ore, discovery of, in Lux- 
embourg, 38 

Minor, Clark, head of Interna- 
tional General Electric, 140, 147, 

Mitchell, Hugh B., 89 

Mitchell, Norman, 275 

Mitteldeutsche Stahiwcrke. See 
Flick steel complex 

Mix 6c Genest A.G., 209 

Monahan, Francois, 207 

Mondon, Herbert, 274 

Money, regulation of value of, 1 19- 
120; reform of German cur- 
rency, 225 

Montgomery, Field Marshal Sir 
Bernard Law, 26 

Morgan, J, Pierpont, 127 

Morgan & Company, J. P., 127 

Morgan interests, 265, 296 

Morgenthau, Henry, Jr., 156 
Morgenthau Plan, for reorganiza- 
tion of Germany, 156, 157, 185 
Mosler, Edward, 100, 128 
Mun, Marquis Gabriel de, 207 
Munich Reinsurance Company^ 23, 

Munich remsurance pool, 20 
Murnane, George, 249, 250 
Murphy, Robert D., United States 

Political adviser in Germany^ 

170, 198 

NAKIB, Bosch holding company^ 

National Association of Manufac** 

turers, 194 
National City Bank of New York, 

127, 194, 207 
National Foreign Trade Council, 

Nationalism, German, postwar 

support of, 244 

Navy Department, 13 

Nazi Party, relations with finance 
and industry, 6, 18, 83-85, 121, 
128-130, 291, 295; financing of 
war program, 11 8-1 21, 122-123, 
128; removal of leaders from in- 
dustry and public life, 157-158; 
plans for future bid for power, 
164-165; problems of, under 
Military Government, 168; in 
postwar business management, 
185. See also Gcrmiiny 

"Nedinsco" firm, 252 

Netherlands, German vested inter- 
ests in, 18-19; ^^^^ 
between, 137; requests for Ger- 
man exit permits, 205, 207-208 

Netherlands Military Administra- 
tion, 133, 134, 136, 139 

Neu/ Yor\ Herald Tribune, 53 

Neu/ Yor\ Times, 230, 257; cited 


on Economics Division, 225; 
quoted on American activities in 
Germany, 225; on tour of busi- 
ness executives, 232 
New York Trust Company, 249 
Nirosta Corporation, 91-93 
Nitrates, 62 

Nitschke, Robert A,, 268 
Nixon, Russell A,, 170, 176, 231, 

North American Rayon, 132, 135- 

N» V. Philips Gloeilampenfabrie- 
ken. See Philips Electric Lamp 
Works, Incorporated 

O'Brian, John Lord, General 
Counsel of War Production 

Board, 13 

Occupation of Germany, policy 
for, 28; defeat of, 235-244; as 
laboratory for study or govern- 
ment in business, 291-295 

Ocean Chemical Company, 115 

OMGUS. See Military Govern- 
ment for Germany (U.S.) 

Opel A.G-, Adam, General Motors 
German subsidiary, iii 

Ophuls, Major Ernst C, 90, 93, 96 

Optical glass, German-American 
working arrangement, 11-12 

Ordinance "No. 78, dcatrtdizsttlon 
law for Bizonia, 228 

Ore and Chemical Corporation, 


Osram, G.m.b.H., Kommandit- 
gesellschaft, 139, 141, 145-147 

Outwater, J. O., 49 

Oxborrow, Brigadier Caton C, 
British decartelization chief, 195, 
227, 228, 272 

pAHLKE, Max, 98 

Papen, Franz von, 6, 52, 241 


Patents, German use of, 61-63; 
Standard Oil suit for recovery 
of, 77-81; Krupp, 91-92; Henkel 
& Cie., 116-117; Philips-Teie- 
funken, 143-144; problem of, in 
Germany, 197, 222-223 
Patterson, Robert P., 13, 232 
Patton, Genera! George S., 58-59, 

Pearson, Drew, 274 

Pembroke Chemical Corporation, 


Penicillin, problem of, in Ger- 
many, 210-213, ^33 

Perkins, Milo, Executive Director, 
Board of Economic Warfare, 9 

Pcrmancnte Metals, 283 

Pfeiffer, Carl, 128 

Pferdmenges, Robert, Director of 
United Steel, 100; postwar nego- 
tiations with France, 241 

Pferdmenges & Company, 100, 
lor, 122 

Philips, A, F., 147 

Philips, Frits, 144 

Philips Electric Lamp Works, In- 
corporated, 22; operations of, 
139-147; State Department and, 

Phiiipsborn, Major Martin, 97 

Phoenix Works, 30, 99 

Phrix Works, cellulose wool, 131 

Pietsch, Albert, 44 

Pilisbury, Colonel, Control Officer 
for I.G. Farben, 164, 186 

Plant Site Board, 286 

Plastic sheets, international pro- 
duction agreement, lo-ii 

Pleigcr, PsLul^ head of Reich Coal 
Association, 72, 132 

Pocnsgen, Ernst, Chairman of 
United Steel, 40, 41, 44, 45, loi, 

Pocnsgen family, 95 



Pohl, Oswald, SS director of con- 
centration camps, 120, 121 

Poison gas, production of, by I,G. 
Farben, 59-60; experiments on 
slave laborers, 81; plant at Gen- 
dorf, 187 

Policies, Allied postwar, in Ger- 
many, 27-28; relaxation of, 215- 
220; clashes in U.S. Military 
Government, 221-222; integra- 
tion and co-ordination of Ger- 
man internal economy, 267; 
defeat of x^merican, for Ger- 
many, 275-278, 279, 282 

Poftugai, ex-Niizis in, 2S1-2S2 

Post-wars, 235 

Potsdam Agreement, 158-162, 168, 

179, 180, 183, 210, 229 
Procter & Gamble, relations with 

American Hyalsol Corporation, 

116, 117 

Production, search for German 
bottlenecks, 9-10; restriction of, 
by international agreement, 10- 
11; American, in wartime, 17; 
of German heavy industry, 1928, 
43; of capital goods in Ger- 
many, 107-108; stimulation oi 
German, 214-215; war, 297-298 

Property Division, creation of, 255 

Puender, Hermann, President of 
Executive Council, Bizonal Eco- 
nomic Administration, 273-275 

Puhl, Emil, deputy head of Reichs- 
bank, 118, 120, 121, 278, 280, 
281 ) 282 

Railway system, Nazi workmen 
removed, 168. See also Trans- 

Rains, Ed, 97 

Rand Mines, 115 

Rasche, Karl, iii, 112, 113, 121, 

Rassbach, Erich, 249 

Rathbun, Richard R,, 261 

Raw materials, allocation of, in 
postwar Germany, 177, 213-215; 
control of, in Germany, 216 

Raw Materials, Advisory Commit- 
tee on Questions of, 72 

Reconstruction Finance Corpora- 
tion, dollar credits to Germany, 
213-214, 216; loans to Reynolds 
Metals, 284; loans to Kaiser, 286, 

Reconstruction Loan Corporation, 

Reed, PhiJjp D., Chsirm^n, Gen- 
eral Electric Company, 136, 193- 
194, 265, 282; mission to Ger- 
many, 222-223, 226-227 

Reemtsma, Philip, 127 

Reemtsma cigarette monopoly, 127, 

Reich Association for Artificial 

Fibers, 131 
Reich Association of German In- 

dustry, 85 

Reich Coal Association, 132 

Reichert, Dr., quoted on Interna- 
tional Steel CsLrtelf 46 

Reichsbank, storage of recovered 
gold and valuables, 73; opera- 
tions of, 118, 253-254; handling 
of SS loot, 1 20-1 2 1 

Reichsgruppe Industrie, t8, 40, 
123, 268; economic collaboration 
of Germany and Britain, 96, 

Reichs-Kredit-Gesellschaft, opera- 
tions of, 122, 123-124 
Reichsvereinigungen, 131-132 
Reichswerk A.G. Herman Goring, 

Reims, SHAEF headquarters, 88 
Reinhardt, Friedrich, 125 
Reinsurance. See Insurance 


Reorganization. See Decartelization 


Reparations, German, after World 
War I, 33; problem of, 159, 160; 
Allied positions on, 1 80-1 81, 
187; dismantling program^ 214- 
215, 238-239 
Reparations Division, 163 
Replacement agreements, 215 
Report on German Cartels and 

Combines J 230, 231 
Report on Germany (Brown), 243- 
244 ^ 

Republic Steel Corporation, 47, 48, 

164, 173, 285, 296 
Restitution Branch, 193 
Reusch, Paul, General Manager of 

Haniel properties, 45, 104, 2S0 
Renter, Wolfgang, 127 
Reynolds Metals, 283-285 
RFC. See Reconstruction Finance 

Rhein-Elbe Union, participant in 

United Steel combine, 99 
Rheinische Stahlwerke, participant 

in United Steel combine, 100 
Rheinmetall-Borsig, armament 

firm, 87, 100 
Rheinpreussen, coal-mining firm, 


Rhenish-Westphalian Coal Syndi- 
cate, 100, 1 01, 105, 273 

Rhenish-Westphalian Electric Com- 
pany, 100, 1 01, 273; loans to, 71 

Rhineland, industrialists in, 6, 106- 
108; effect of Allied bombing, 

Ribbentrop, Joachim von, Nazi 
Foreign Minister, 53, 209 

Richards Chemical Company, 116 

Richter, Hermann, Chairman of 
Henkel & Cie., 116 

Ring. See Kunstseide Ring 

Ringer, Fritz, 77-80 

EX 321 

Rio Tinto mines, no 

Ritchie, William, 165 
RKG. See Reichs-Kredit-Gesell- 

Robertson, Sir Brian, British Mili- 
tary Governor, 238, 274 

Rochling, Christian, 35 

Rochling, Hermann, 35-36 

Rochling, Robert, 35*^36 

Rochling family, 34-36, 90 

Rochling plant, 42-43 

Rockefeller interests, 296 

Rodange, Luxembourg steel com* 
pany, 40 

Roehnert, Helmuth, 128 

Roesler, Oswald, 127 

Roges, Nazi stock-piling corpora- 
tion, 217 

Rohm & Haas, agreement with Du 
Font and f.G. Farben, lo-ii 

Rollins College, 136 

Roosevelt, Franklin D,, quoted on 
I,G. Farben and economic war- 
fare, 14; on economic warfare, 
28, 80; position on decentral- 
ization of German economic 
power, 155-156, 157; attempt to 
control business activities, 264; 
cited on occupation of Germany, 

Rowak Handelsgcsellschaft, barter 
agency, 124, 217 

Royall, Kenneth C, Secretary of 
the Army, 275 

Ruhr, struggle for, 28; steel in- 
dustry after World War I, 28- 
31,* occupation ofy by France, 
1923, 32; British occupation of, 
76, 153, 154; investigators* head- 
quarters in, 82-83; investigation 
of steel industry, 85-88, 91-108; 
effect of Allied bombing, 161- 
162; disposal of heavy-industry 
plants, 179; Allied positions on. 

322 IN 

i8o; postwar steel production, 
184; Steel Trustee Association^ 


Russia, position on reorganization 
of Germany, 159, 169, 171; 
relations with German labor 
groups, 180; position on Ger- 
man reparations, 1 80-181, 187; 
on unification of Germany, 181- 
182, 238; negotiations for de- 
carteiization law, 195, 196, 198, 
199, 227 

Riistungskontor, corporation for 

handling scarce and strategic 

materials, 128 
RWE. See Rhenish-Westphaiian 

Electric Company 
RWKS. See Rhenish-Wcstphalian 

Coal Syndicate 
Ryan, Lieutenant Colonel E., 


*'S" ACCOUNT, 55, 56, 209, See 
also Himmler Fund 

Saar Basin, Rochling family dom- 
ination, 35-36 

Sabotage, business arrangements 
as, 12; German, in United States 
in World War I, 52-53 

Sacks, Alexander, 24, 54, 55, 60- 
61, 259; cited on Ruhr steel in- 
dustry, 261-262; quoted on fail- 
ure of American reorganization 
program in Germany, 277; dis- 
missal and reinstatement, 277- 


Sadowski, George G., 262 
St. Claire, Colonel W. K., 86 
St. John's College, 3, 5 
Salvarsan, 62-63 
Salzdetfiirth A.G., 10 1, 125 
Sarin, German superpoison, 59 
Saudi Arabia, 297 


SCAF 239, Eisenhower*s policy 

cable, 25, 37 
Schacht, Hjalmar, head of Reichs- 

bank, 72, 104, 118-120, 241, 280; 

plan for postwar German recov- 
ery, 242-243 
Schacht plan, 242-243 
Schering A,G., chemical combine, 

100, loi, 125, 212, 213 
Schill, Emii, President of Krupp- 

Nirosta, 92, 93 
Schioss Friedrichshof, 73 
Schlosser, Hermann, in 
Schmitz, Geheimrat Hermann, 

head of LG. Farben, 64, 77, 100, 

III, ti2, 127 
Schncider-Creusot interests, 207 
Schniewind, August, 242 
Schnitzlcr, Baron Georg von, 55- 

57, 64, 68, 74, 133, 278 
Schott Works, Jena, 11 
Schroder, Baron Bruno von, 51 
Schroder, Baron Johann Heinrich 

von. See Schroder, J. Henry 
Schroder, Baron Kurt von, 49-54 

passim, 71, lor, 105, 131, 132, 

135, 209, 280 
Schroder family, 51 
Schroder, Helmuth W. B., 51 
Schroder, J. Henry, 51 
Schroder & Company, J. Henry, 

London, 51 
Schroder Banking Corporation, 

J. Henry, New York, 25, 51, 

53, 67-68, 106 
Schroeder, Gerhard, 274 
Schultheiss brewing firm, 257 
Schuman, Foreign Minister, 241 
Schuman plan, 243 
Schiirmann, Krupp director, 93 
Schwcinfurt, Germany, industrial 

plants at, 10; bombardment of, 


Semmlcr, Johannes, 242 


Sempell, Oskar, xoo 

Sergent, Rene, 36 

SHAEF, Financial Branch, 17 

Sheets, for German hospitals in 

American zone, 216 
Ship sailings, German information 

oty in wartime, 19-20 
Siemens, Carl Friedrich von, 100 
Siemens, Hermann von, loo-ioi, 

Siemens & Halske electrical equip- 
ment combine, 81, 90, 100, loi, 
1^7* 130. 139. M5» 214; agree- 
ment with Bcndix and Zenith, 
ij; loans to, 71 

Silberwiese mine, 94 

Singer Sewing Machine Company, 

Sippell, Karl Ernst, 127 
SKF. See AB, Svenska KuUager- 

SKF Industries, Incorporated, 253, 

SKF Steels Incorporated, 253 
Socicte dc Credit Intercontinen- 
tal, 207 

Sohl, Giinther, 274 

Solvay & Cie-, 71 

"Sonderkonto S,'* 54, 55, 56, 209. 
See also Himmler Fund 

South America. Sec Latin Amer- 

Southern Cross, Wenner-Grcn's 
yacht, 251 

Soviet Union. See Russia 

Spa, Protocol of, 30. 32 

Spain, mining enterprises, no; ex- 
Nazis in, 281-282 

Spanish Morocco, no 

Spcer, Albert, German Minister of 
Armaments, 84, 201 

Spencer, Leland £., memorandum 
on revised German policy, 267- 

Spencer, Richard, 222-223 

Springorum, Fritz, 125-126 
StaH studies, 221, 255, 256 
Stahlhof, Diisseldorf, 85-86 
Stahi union Export, ''foreign rela- 
tions'* department of United 
Steel Works, 85-86 
Stahlwerks Verband, German na- 
tional steel cartel, 78, 85; re- 
named Walzstahl Verband, 94 
Standard Eiektrizitats-Gesellschaft, 

Standard Oil Company, lo, 279, 

Standard Oil Company of New 
Jersey, relations with I.G. Far- 
ben, 69; suit against Alien Prop- 
erty Custodian, 77-81, 97 

Stanley, Oliver, quoted on Diissel- 
dorf Agreement, 172, 174 

Stars and Stripes, cited on prop- 
erty division, 255-256 

State Department, handling of 
representations and inquiries, 
142; negotiations with Foreign 
Office on decartelization law, 

Stedman, John C, 275 
Steel Export Association, 48, 49 
Steel industry. See Iron and steel 

Steel Trustee Association, 273-275 
Stein, Heinrich von, lOi 
Stein Bank. See Bankhaus J. H. 

Steinbrinck, Otto, 101 
Sterling Products, Incorporated, 
agreement with LG. Farben, 

7-8, 15 
Stimson, Flenry L,, 157 
Stinnes, Hugo, Sr., 99, 266 
Stinnes, Hugo, Jr., 30, 90, 185, 


Stinnes Corporation, Hugo, 266 



Stinnes Industries, Incorporated, 

Hugo, 266 
Stinnes interests, 71, 266-267, ^73 
Stokes, Thomas L., eked on Ster- 
ling Products, Inc. and LG. Far- 
ben, 7-8 

Stolper, Gustav, German econo- 
mist, 228, 229 

Stoneware, German sabotage of, 
in World War I, 52-53 

Stragneii, Dr. Gregory, 212, 213 

Strategic Bombing Survey. Sec 
Bombing Survey 

Stresemann, Gustav, German 
Chancellor and Foreign Minis- 
ter, 32 

Subsidies, of heavy and synthetic 
industries, 66; United Steel, 103 
Sugar trust, South German, 257 
Sullivan & Cromweil, 53, 67, 207, 

Surplus Property Administration, 

Sweden, role of, as go-between, 

137; ex-Nazis in, 282 
Switzerland, bank secrecy law, 67; 

American diplomatic position in, 

67-68; role of, as go-between, 

137; ex-Nazis in, 282 
Synthetics, German development 

of, 62-63, ^^^i edible, 131 
Szymczak, M. S., 233 

1 FORCES, 27, 51 

Tabun, German super poison, 59 
Tariffs, reduction of, 282-283 
Tarnung program, I.G. Farben 

concealment program, 65, 66 
Taylor, John W., 238 
Telefunken, German radio com- 
bine, 139, 143-144 
Tengelmann, Wilhelm, 90 
Tennessee Valley Authority, 284, 

Terbovcn, Gauleiter, 102 

Termites, 3 

Textiles, resumption of German 
production, 216, See aho Cotton 

Third Reich. See Germany 

Thompson, Richard, 55 

Thorns, assistant to Emil Puhl, 121 

Thorp, Willard, Assistant Secre- 
tary of State for Economic Af- 
fairs, 233 

Thucydides, 5-6 

Thyssen, Fritz, 30, 41, 85, 92, 100, 

Thyssen group, 99, 273 
Tilley, Major Edmond, 77, 97 
Times, London, quoted on Diissel- 

dorf Agreement, 174 
Todd, William B., 49 
Toynbee, Arnold, 236 
Trade, See International Trade 

Trade and Commerce Branch, 192, 

214, 215, 228 
Trade associations, concessions to, 

in Germany, 107 
Trade-marks, T.G. Farben, 215- 


Trading with the Enemy Act, 192 
Transport Division, 167-168 
Transportation, German, under 

Potsdam Agreement, 160-161 
Travel, relaxation of restrictions 

on, 208-2T0 
Trianon Palace Hotel, Versailles, 
meeting of United States and 
British Inteiiigence ofHcers, 75 
Truman, Harry S., 89, 222, 275 
Truman Committee, quoted on 

doliar-a-year men, 265 
Tubos Mannesmann, Ltda., 98. 
See dso Mannesmann Rohren- 
werke A.G. 
Tungsten carbide monopoly, pros- 
ecution of, 269 


Tunnell, James M., 88 
TVA* See Tennessee Valley Au- 

Unification, problem of, in post- 
war Germany, 1 81-182, 187, 238 

Unilever, Ltd*, 116, 219 

United Aluminum Works, in, 

United Fruit Company, 296 

United Industrial Enterprises, In- 
corporated, 71, 124, 128, 273 

United Rayon combine, 71, 75, 
127, 131-136 

United States Commercial Com- 
pany, shipments to Germany, 
214, 216 

United States Group Control 
Council, 24; Economics Division, 
24-25; Finance Division, 25. See 
also Military Government for 
Germany (U.S.) 

United States Rubber Company, 

United States Steel Corporation, 
42, 47, 48, 127, 275> 285-286 

United Steel Works, 40-43 passim, 
no, 125, 130, 136, 273, 292; 
formation and operations, 32, 
96, 99-100, 1 01-104; loans to, 
71; headquarters in Diisseldorf, 
85; records, 94, 99; Deutsche 
Erdoel holdings, 95; affiliations 
of supervisory board and direc- 
tors, 100-10 1 ; assets and em- 
ployees, 104 

Vaughan, Major, 88 
Verdun, 31 

Vereinigte Aluminium Werke 

A.G., III, 112 
Vereinigte Kugellagerfabrikcn 

A.G., operations of, 246, 247, 

251-254, 256; investigation of, 
260, 268-'269 

Vereinigte Stahlwerke. See United 
Steel Works 

Versailles, meeting of United 
States and British Intelligence 
officers, 75 

Versailles Treaty, 29, 30, 33, 46, 
91; German evasion of, 3^37; 
German industry under, 62 

VGF, See United Rayon combine 

VIAG. See United Industrial En- 
terprises, Incorporated 

Vichy government, 36. See also 

Vickers, Ltd., 91 

Victoria, Queen, no 

Villa Hiigel, headquarters of in- 
vestigators in Ruhr area, 83-84, 

Visitors, reports of American, in 
Germany, 184-185; briefings of, 
by Economics Division, 193- 
194, 200 

Vits, Ernst Helmuth, General 
Manager of VGF, 131, 132, 135, 

VKF, bearings combine. See Ver- 
einigte Kugellagerfabrikcn A.G. 

Vlissingen, F. H. Fentener van, 99, 
loi, 105, 131, 132, 133, 135, 136 

Vogler, Albert, Chairman of 
United Steel, 30, 71, loi 

W>^GNER, Gerhardt, manager of 
Mannesmann agencies in United 
States, 98-99 

Waldhof company, lor 

Walker, John, 54-55 

Wallenberg, Jakob, 250, 251, 252 

Wallenberg, Marcus, 250, 251, 252, 

Walscm, H. F. van, 140 



Walzstahl Verband, German na- 
tional steel cartel, 94 
War Assets Administration, 286 
War Department, 13; Division. o£ 
Investigation of Cartels and Ex- 
ternal Assets, 153, 170; plans for 
German economic recovery, 156- 

War Investigating Committee^ 143, 

221-122, 225-226 
War Production Board, 13, 286 
War program, financing of, in 
Germany, 11 8-1 21, 122-123, 
Washington, D.C., 4 
Wason, Robert R., President, Na- 
tional Association of Manufac- 
turers, 194 
Weimar Republic, industry groups 

under, 107 
Weir, Sir Cecil, president of Brit- 
ish economic subcommission, 
224, 225, 227 
Welier, Seymour, 207 
Welsbach gas mande, 145 
Weltzien, Hans, 11 1, 113, 125 
Wendel family, de, 34, 35, 241 
Wenner-Gren, Axel, 251, 252 
West, Robert, 54 
Westrick, Gerhardt A., 52, 53, 90, 

Westrick, Ludwig, iii 

Wickersham, Brigadier General 
Cornelius W., 24, 25, 52 

Wilkinson, Colonel Lawrence, 
head of Industry Branch, 192, 
219, 224, 259, 260, 269; quoted 
on German recovery, 200; posi- 
tion on cartel policy, 245; report 
of Ferguson Commission on, 
276; resignation, 277 

Wilson, General Arthur C, par- 
ticipation in Bosch casc> 270- 

Wilson, Woodrow, 7, 236 
Wilson & Company, 296 
Winant, Fred, Director of Trade 
and Commerce at Berlin, 162— 


Windsor^ Duke and Duchess of^ 

Winegrovi^ers, German, 6 

Wingquist, Sven, 251, 252 

Winkhaus, Hermann, technical 
director of Mannesmann, 94 

Wintershail potash combine, 214 

Wirtschaftsgruppe, iron and steel, 
control of Luxembourg steel in- 
dustry, 40 

Wohlforth, Robert, 9 

Wolff, Otto, 30, 41, 99, I or, 102; 
cited on German-French co- 
operation, 32 

Wolf? complex, Otto, 30, 55, 273 

Wolframerz A.G., 93 

World War i, occupation of Ger- 
many, 28; German sabotage in 
United States, 52-53 

World War 11, Nazi war economy 
in Germany, 11 8-12 1, 122-123, 
128-130; business in govern- 
ment, 265-266; productive effort, 
29 B 

Worms et Cie., 206 
Wysor, Rufus, 164, 173 

Young Plan, 92, 280 

Zangen, Wilhelm, General Man- 
ager of Mannesmann, 87, 94- 

Zeiss, Carl, 252 

Zenith, agreement with Bendix 
and Siemens, 11 

Zurich group, insurance compa- 
nies, 20, 21